Risk-adjusted performance measurement

Pilar Grau-Carles

Chapter 5 in Understanding Investment Risk and Return, 2025, pp 94-123 from Edward Elgar Publishing

Abstract: Investment performance measures play a critical role in evaluating the effectiveness of portfolios and asset managers. Key metrics such as the Sharpe, Sortino, Treynor, and Information ratios assess risk-adjusted returns, focusing on performance relative to benchmarks or targets. The Sharpe ratio evaluates the excess return of an investment per unit of total risk, considering both upside and downside volatility. In contrast, the Sortino ratio emphasizes downside risk by using only the volatility of negative returns. The Treynor ratio measures returns earned more than what could have been earned on a risk-free investment per unit of market risk, providing insight into a portfolio's performance relative to systematic risk. The information ratio measures a manager's ability to generate excess returns adjusted for tracking error, reflecting active management performance. Understanding these metrics aids investors in selecting investments aligned with their risk tolerance and objectives.

Keywords: Risk-adjusted returns; Sharpe ratio; Downside volatility; Sortino Ratio; Information ratio; Treynor ratio (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035339716
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.elgaronline.com/doi/10.4337/9781035339723.00016 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:elg:eechap:23600_5

Ordering information: This item can be ordered from
http://www.e-elgar.com

Access Statistics for this chapter

More chapters in Chapters from Edward Elgar Publishing
Bibliographic data for series maintained by Jack Sweeney ().