Abstract
There are many potential investment options for investors and they should be able to compare them on a risk-adjusted basis. If investors rely only on pure return they can be exposed to a high risk. Therefore, many investors rely on adequate performance measures to evaluate potential investment opportunities. In this paper, we describe widely used risk-adjusted performance measures and add correlation through the M3 measure. We apply described measures to real financial data in order to rank managers and compare rankings between measures. We also look at the following year measures to compare the results with predictions.
Highlights
IntroductionThat is why it is important to be able to select new investments by their returns and making an adjustment for correlation between new stock and an existing portfolio
According to the Investment Company Institute (2018) in 2017 total net assets of worldwide regulated open-end funds was more than $ 49 trillion and have more than doubled in the past decade
We present several performance measures discussing the advantages and disadvantages of each
Summary
That is why it is important to be able to select new investments by their returns and making an adjustment for correlation between new stock and an existing portfolio Another way to incorporate correlation is to use the approach that was proposed by Dowd (2000). It would be more beneficial for investors in a long run to invest in any of these funds rather than risk-free rate even though the financial crisis of 2008–2010 are included in this dataset.
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