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) the average market beta per unit of risk.

Question

Quizplus · Accepted Answer

Relative return portfolio performance measures evaluate portfolio performance on the basis of return per unit of risk. This is done by analyzing the portfolio's risk-adjusted returns, such as the Sharpe ratio or the Treynor ratio, which take into account both the portfolio's returns and its risk. This allows investors to compare the performance of different portfolios on an equal footing, regardless of their risk levels. A and E are incorrect because they only focus on risk without considering returns. B is not necessarily the best choice as there are other models to measure expected returns besides CAPM. D is not a measure but describes the formula for the Sharpe ratio.

Relative Return Portfolio Performance Measures