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The ability to derive above-average returns for a given risk class.

The ability to diversify the portfolio completely to eliminate all unsystematic risk, relative to the portfolio’s benchmark.

Almost entirely on the basis of the rate of return.

Collects the returns produced by a representative universe of investors over a specific period of time and displays them in a simple boxplot format.

Introduced a risk-free asset that could be combined with different portfolios to form a portfolio possibility line.

• He showed that rational, risk-averse investors
• would always prefer the portfolio line with the largest slope because this would place them
• on the highest indifference curve.

• 2 Components of Risk
• - Risk produced by general market fluctuations
• - Risk resulting from unique fluctuations in the portfolio securities.

Seeks to measure the total risk of the portfolio by using the standard deviation of returns rather than considering only the systematic risk summarized by beta.

• SD can be calculated by
• - total portfolio returns
• - portfolio returns in excess of the risk-free rate

Originally based on the capital asset pricing model (CAPM), which calculates the expected one-period return on any security or portfolio.

Measures a portfolio’s average return in excess of that of a comparison or benchmark portfolio divided by the standard deviation of this excess return.

Overall Performance = Excess Return = Portfolio Risk + Selectivity

Risk-adjusted investment performance statistic.

• Measures the portfolio’s average return in ex-
• cess of a user-selected minimum acceptable return threshold (Rfr)

Captures just the downside risk (DR) in the portfolio.

Grinblatt-Titman (GT) Performance Measure

Characteristic Selectivity (CS) Performance Measure

Distinguishes which factor is the source of the portfolio’s overall performance.

• - Allocation
• - Selection

Unambiguous 

Investable

Measurable

Appropriate

Reflective of current investment opinions 

Specified in advance

Owned

Policy effect

Rate anticipation effect

An analysis effect

Trading effect.