The correct statement about portfolio performance measurement includes: a-Sharpe

Question

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.

Explanation / Answer

Correct statement is

a and d

A) Beacuse Sharpe ratio evaluates the portfolio on the basis of both rate of return and diversification.Therefore, the Sharpe ratio is more appropriate for portfolios

d) Because Sharpe ratio aims to reveal how well an equity investment portfolio performs as compared to a risk-free investment and The Treynor ratio also seeks to evaluate the risk-adjusted return of an investment portfolio, but it measures the portfolio's performance against a different benchmark.

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