O'Reilly logo

Practical Portfolio Performance Measurement and Attribution, Second Edition by Carl R. Bacon

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Appendix A
Simple Attribution

A.1 ATTRIBUTION METHODOLOGY

The following methodology has been developed for use with single currency portfolios.

A.1.1 Scenario

Suppose we have a portfolio invested in n asset classes or industrial sectors. Then, suppose that the performance of this portfolio is measured against a benchmark.

A.1.2 Portfolio returns

Let the weight of the portfolio in the ith asset class be wi, where Σ wi = 1, and let the return of the portfolio assets in the ith asset class be ri . Now the total portfolio return is:
845

A.1.3 Benchmark returns

Let the weight of the benchmark in the ith asset class be Wi , where Σ Wi = 1, and let the return of the benchmark for the ith asset class in the base currency of the portfolio be bi. Now the total benchmark return is:
(as it is in the base currency of the portfolio):
846

A.1.4 Semi-notional returns

We define the semi-notional return of the ith asset class as wibi. Now the total semi-notional return is:
847

A.1.5 Relative performance

We define the performance of the portfolio relative to the benchmark as:
848
and it is this relative ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required