Performance measurement

Investing your wealth in assets based on some analysis is one thing. Measuring and reviewing your performance or your fund manager’s performance is another an as least as important. In portfolio performance measurement, different aspects need to be managed such as profit or loss, risk and incurred costs due to transactions, slippage or other sources. First we start off by explaining the most basic performance metrics such as the Sharpe ratio, the Jensen’s alpha and the Treynor ratio. Thereafter, we continue by treating more complex performance metrics such as the Sortino ratio and the M2 measure.