1-The correct statement about portfolio performance measurement includes: a-Shar

Question

1-The correct statement about portfolio performance measurement includes:

a-Sharpe ratio is always a better measure than Treynor’s ratio when measuring portfolio performance.

b-M2 is always a better measure than Jensen’s alpha when measuring portfolio performance.

c-Standard deviation is a measure of systematic risk or market risk. Every financial asset including portfolios must have a beta.

d-Sometimes we can have inconsistent rankings when we use Sharpe ratio and Treynor ratio to measure portfolios’ performance. The reason is that these two ratios use different measure for risk.

2. The correct statement includes:

a.TTM P/E ratio is more important than forward P/E ratio when we determine whether a stock is overpriced or underpriced.

b.The average P/E ratio (both forward and TTM) for the US stock market is 28.

c.Earnings surprise is one of the trading strategies we have discussed on the class. It is calculated as: a firm’s reported actual EPS/analyst’ forecasted EPS

d.TWTR (Twitter) has a beta of 1.30. This means that on average, if the stock market goes up by 1%, TWTR stock will go up by 1.30%. It also means that TWTR stock is riskier than the overall stock market.   

Explanation / Answer

1)It is option A since sharpe ratio and treynor ratio both have same numerator but differ in denominator . It is always better to use standard deviaiton which measures total risk than the beta which tells only market risk.
2)Option A is false since forward PE ratio is better measure than trailing PE ratio
It is option D since beta tells how the stock moves with respect to market

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