Dr. Lokanandha Reddy Irala(www.irala.org) 1 Portfolio Performance Evaluation RISK ADJUSTED BASED METHODS.

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Dr. Lokanandha Reddy Irala(www.irala.org) 1 Portfolio Performance Evaluation RISK ADJUSTED BASED METHODS

Dr. Lokanandha Reddy Irala(www.irala.org) 2 Risk adjusted Methods  Differential Return : Jensen’s Alpha  Return per unit Risk Sharpe’s RVAR Treynor’s RVOL

Dr. Lokanandha Reddy Irala(www.irala.org) 3 Sharpe’s measure  Sharpe’s measure Excess Return per Unit Total RISK  Larger the ratio, better is the performance of the fund

Dr. Lokanandha Reddy Irala(www.irala.org) 4 Treynor’s measure  Treynor’s measure Excess Return per Unit SYS. RISK  Larger the ratio, better is the performance of the fund

Dr. Lokanandha Reddy Irala(www.irala.org) 5 Jensen’s Alpha  Given a good estimate of the risk free rate, use the SML to arrive at the expected return on the portfolio is the actual return on the portfolio The fund is said to have performed better if Jensen’s Alpha is + Ve else other wise.

Dr. Lokanandha Reddy Irala(www.irala.org) 6 Appraisal ratio  Divide the Alpha of the portfolio by the non systematic risk of the portfolio