RAPMs – Spreadsheet

by David Harper, CFA, FRM, CIPM

FRM |

Here is the spreadsheet I used to review risk-adjusted performance measures. It answers the following set of questions:

• Assume the riskless rate is 4%
• Assume the market portfolio has a return of 12% with volatility of 20%
• Assume our portfolio’s expected return is 14% with volatility of 40%, beta of 1.2 and tracking error of 2%
• Question: what is the portfolio’s Treynor measure? and why would we use this measure?
• Question: what is the portfolio’s Sharpe measure? and why would we use this measure?
• Question: what is the portfolio’s Jensen’s alpha? why would we use this measure? and how is this different than Grinold’s alpha (or Andrew Lo’s alpha, for that matter)?
• Question: what is the portfolio’s information ratio?

Spreadsheet:

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