Mr. Anderson needs some financial help. Below are Mr. Anderson\'s Anualized hold

Question

Mr. Anderson needs some financial help. Below are Mr. Anderson's Anualized holding return, Standard Deviation, Beta, and Sharpe Ratio. Please help Mr. Anderson compare his Portfolio's perfomance against that of the market via the Sharpe Ratio. Please show your work/ Be as especific as possible, so Mr Anderson is able to understand it. Thank you.

Financial Information ( Port Ret/ Mkt Ret) Potfolio Return   Market Return

Annualized Holding return 30.51% 38.55% Annulaized Standard deviation 12.23% 15.04% Sharpe Ratio 2.449845757 2.558166965

Explanation / Answer

For the data, we can see that Mr. Anderson's annual return is lower than that of the market. The market has given 38.55% whereas his portfolio has given only 30.51%. Hence his return is lower than the market by 20.8%.

However, this can be attributed to the lower stad.deviation that can be seen in his portfolio. This means that Mr. Anderson is taking a lower risk when compared to that of the market.

The Sharpe ratio also measure how much extra return can be genretaed with the additional risk an investor takes. Here we can see that the sharpe ratio for Mr. Anderson is lower than that of the market.

Hence we can conclude that the Mr. Anderson is a risk averse investor who invests in only stable stocks with lower volatility and hence he the same has produced a lower return than the market

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