Relative return portfolio performance measures
A) Adjust portfolio risk to match benchmark risk.
B) Compare portfolio returns to expected returns under CAPM.
C) Evaluate portfolio performance on the basis of return per unit of risk.
D) Indicate historic average differential return per unit of historic variability of differential return.
E) None of the above.

Question

Quizplus · Accepted Answer

Relative return portfolio performance measures evaluate portfolio performance on the basis of return per unit of risk. This allows for a fair comparison between portfolios of different risk levels. Adjusting portfolio risk to match benchmark risk (A) and comparing returns to expected returns under CAPM (B) are also important measures, but they do not specifically evaluate performance relative to risk. Indicating historic average differential return per unit of historic variability of differential return (D) is a measure of risk-adjusted return commonly used in hedge fund performance analysis but less relevant for traditional investments portfolios. Therefore, C is the best choice.

Relative Return Portfolio Performance Measures