Week 3 - Measurements of performance

Question 1

What does the tracking error metric tell you?

Answer 1

Tells you how far the fund has deviated from benchmark
Low TE = closely tracking
High TE = invested differently

Question 2

What does the sharpe ratio tell measure?

Answer 2

Measures risk adjusted performance

Question 3

What does the Alpha ratio and Treynor ratio measure?

Answer 3

Alpha ratio and Treynor ratio:

measures of sensitivity to market portolio

Question 4

What does the information ratio measure?

Answer 4

information ratio:

Measures reward for separating from market portfolio

If result (alpha) are higher then 0 = positive returns