How has your portfolio performed this year? It is a simple
enough question that is actually not so simple. That is because a
portfolio's return over the short term provides little insight
into whether the result was achieved through good decision making
or despite it.
In fact, to fully understand your
results, you need to consider your investments' performance on
a risk-adjusted basis. Luckily, various statistical measures are
available to make it easier to see how much risk a manager has
assumed to generate a certain level of return.
Risk Metrics
The following are common risk metrics that help investors better
understand how their portfolio is positioned:
Beta
Beta measures how sensitive an investment is compared with
the overall market (usually represented by the S&P 500 index).
A fund or portfolio with a beta of 1.0, for example, would have the
same level of volatility as the market as a whole. Investments with
a beta of less than 1.0 would be less
