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SAPM
Portfolio performance measure
Sharp’e Measure
Treyno’r Measure
Jensen’s Measure
ingleyogeshh@gmail.com
Portfolio
Equity
Debt
Commodity
ingleyogeshh@gmail.com
Objectives of portfolio
• Maximum return with minimum risk
• Allocation of fund
• Transfer of risk
• Combination of securi...
Portfolio evaluation
• To identify sources of strength or weakness
• As Control mechanism
• For comparison
ingleyogeshh@gm...
Performance evaluation measurement
• Sharp’e Measure
• Treyno’r Measure
• Jensen’s Measure
ingleyogeshh@gmail.com
Sharp’e Measure
• It measures return relative to total risk
• Risk is predominately from systematic risk
ingleyogeshh@gmai...
=( 𝑅 - Rf ) / σ
• 𝑅 = Average return
• Rf = Risk free return
• σ = standard deviation of return
ingleyogeshh@gmail.com
• Birla SL Frontline Equity (G) and SBI Blue Chip Fund
(G) are two portfolios. Birla SL Frontline Equity (G)
has a sample ...
Birla Sun Life Top 100 (G) Kotak Select Focus Fund -
Regular (G)
Average Return 17 15
Standard deviation 16 12
Risk free r...
Treynor’s Measure
• Measurement of return relative to beta
• It ignores unsystematic rate
ingleyogeshh@gmail.com
=( 𝑅 - Rf ) / β
• 𝑅 = Average return
• Rf = Risk free return
• β = beta
ingleyogeshh@gmail.com
Portfolio Average Return Beta Standard Deviation
L&T India Value
Fund (G)
18 2 3
Principal Emerging
Bluechip(G)
12 1.5 2
T...
Jensen’s Measure
• It is based on CAPM
• It express relationship between risk and return
ingleyogeshh@gmail.com
Ki=Rf +β (Km – Rf)
• Ki= Required or Expected rate of return on
security
• Rf= Risk free rate of return
• β= Beta of secur...
• You are required to rank these portfolios
according to Jensen’s measure of Portfolio
evaluation.
Portfolio Return on por...
You are required to rank these portfolios
according to Sharpe, Treynor and Jensen’s
measure. Risk free rate of return is 8...
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SAPM lecture 5Portfolio performance measure

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SAPM lecture 5Portfolio performance measure

  1. 1. SAPM Portfolio performance measure Sharp’e Measure Treyno’r Measure Jensen’s Measure ingleyogeshh@gmail.com
  2. 2. Portfolio Equity Debt Commodity ingleyogeshh@gmail.com
  3. 3. Objectives of portfolio • Maximum return with minimum risk • Allocation of fund • Transfer of risk • Combination of securities • Professional service • Expert advice ingleyogeshh@gmail.com
  4. 4. Portfolio evaluation • To identify sources of strength or weakness • As Control mechanism • For comparison ingleyogeshh@gmail.com
  5. 5. Performance evaluation measurement • Sharp’e Measure • Treyno’r Measure • Jensen’s Measure ingleyogeshh@gmail.com
  6. 6. Sharp’e Measure • It measures return relative to total risk • Risk is predominately from systematic risk ingleyogeshh@gmail.com
  7. 7. =( 𝑅 - Rf ) / σ • 𝑅 = Average return • Rf = Risk free return • σ = standard deviation of return ingleyogeshh@gmail.com
  8. 8. • Birla SL Frontline Equity (G) and SBI Blue Chip Fund (G) are two portfolios. Birla SL Frontline Equity (G) has a sample mean of success 12% and SBI Blue Chip Fund (G) has a sample mean of success 16%. The respective standard deviation are 15% and 18%. The mean return for the market index is 12 and standard deviation is 8% while the risk free rate of return is 8%. • Compute the sharpe index for the portfolios and market and comment ingleyogeshh@gmail.com
  9. 9. Birla Sun Life Top 100 (G) Kotak Select Focus Fund - Regular (G) Average Return 17 15 Standard deviation 16 12 Risk free rate 9.5 9.5 Compute the sharp’e index for the portfolios and market and comment ingleyogeshh@gmail.com
  10. 10. Treynor’s Measure • Measurement of return relative to beta • It ignores unsystematic rate ingleyogeshh@gmail.com
  11. 11. =( 𝑅 - Rf ) / β • 𝑅 = Average return • Rf = Risk free return • β = beta ingleyogeshh@gmail.com
  12. 12. Portfolio Average Return Beta Standard Deviation L&T India Value Fund (G) 18 2 3 Principal Emerging Bluechip(G) 12 1.5 2 The risk free rate of return is 9%. The rate of return on market portfolio is 15%. The standard deviation on market is 6%. Compute Treynor’s and sharpe index for portfolio and evaluate portfolio’s performance.ingleyogeshh@gmail.com
  13. 13. Jensen’s Measure • It is based on CAPM • It express relationship between risk and return ingleyogeshh@gmail.com
  14. 14. Ki=Rf +β (Km – Rf) • Ki= Required or Expected rate of return on security • Rf= Risk free rate of return • β= Beta of security • Km= Expected rate of return on market portfolio ingleyogeshh@gmail.com
  15. 15. • You are required to rank these portfolios according to Jensen’s measure of Portfolio evaluation. Portfolio Return on portfolio Portfolio beta Risk free interest rate Franklin Build India Fund (G) 15 1.2 8 Kotak Infras. & Eco Reform -Standard (G) 12 0.8 8 Tata India Tax Savings Fund - Reg (D) 16 1.5 8 Market Index 13 1.0 8 ingleyogeshh@gmail.com
  16. 16. You are required to rank these portfolios according to Sharpe, Treynor and Jensen’s measure. Risk free rate of return is 8% Portfolio Return on portfolio Portfolio beta Standard deviation Franklin Build India Fund (G) 15 1.25 0.25 Kotak Infras. & Eco Reform -Standard (G) 12 0.75 0.75 Tata India Tax Savings Fund - Reg (D) 10 1.10 1.10 Market Index 12 1.20 1.20 ingleyogeshh@gmail.com

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