Evaluating portfolio performance It is crucial to evaluate and measure portfolio performance.
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Evaluating portfolio performance
It is crucial to evaluate and measure portfolio performance. There are numerous ways to evaluate portfolios, and investors and portfolio managers should be familiar with these techniques. Two important measures to evaluate portfolio performance are the Sharpe and Treynor ratios.
For the following discussion, you will use the following two portfolios from Table 1 below:
Last name A to C: Portfolios A and B
Last name D to F: Portfolios C and D
Last name G to I: Portfolios E and F
Last name J to L: Portfolios G and H
Last name M to O: Portfolios A and G
Last name P to R: Portfolios B and E
Last name Q to S: Portfolios C and F
Last name T to V: Portfolios D and G
Last name W to Z: Portfolios H and E
Based on the two portfolios you were assigned above, calculate the Sharpe ratio and the Treynor ratio for each portfolio.
In your initial post,
Explain each ratio and how it is calculated.
Show your calculations of each ratio.
State which portfolio performed better.
Explain when an investor should use each ratio to evaluate performance.
Table 1
Sample Portfolios
Portfolios
Average Annual Return (%)
Standard Deviation (%)
βp
R2
E
15.0
17.4
0.88
0.88
F
19.0
18.0
0.89
0.89
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