Contribution and Attribution Flashcards
Define Contribution to Return Define Attribution Analysis and the Attribution Effects Build Attribution reports Create a story based on Attribution Effects explaining relative performance
1
Q
What is contribution to return?
A
- It is a way to see how much each security contributes to the overall return of the portfolio. It is the weight of the security in the portfolio multiplied by the return for the security over the period analysed. The sum of those contributions is equivalent to the portfolio return (the absolute return).
2
Q
What is attribution to return?
A
- Attribution to return is concerned with the relative return of the portfolio. It identifies the decision-making process in the portfolio construction and analyses how effective those decisions were in outperforming the benchmark,
3
Q
What three effects does the Brinson Attribution account for?
A
- Allocation Effect.
- Selection Effect.
- Interaction Effect.
4
Q
What is the Allocation Effect?
A
- It measures the ability of the manager to allocate their portfolios to the correct segment (e.g. sector).
5
Q
What is the Selection Effect?
A
- The Selection Effect measures the ability of the manager to select the right securities in a segment (e.g. sector).
6
Q
What is the Interaction Effect?
A
- It measures the conviction of the manager - did they put their money where their mouth is?
- It can also be thought of as the combination of the allocation and the interaction effect.
7
Q
What is the Total Effect?
A
- Total Effect is the overall relative return.
- It is also the sum of the AE, SE, and IE.
