Financial Education

Many portfolio analysts use different sets of variables for portfolio return and risk attribution, respectively. As risk and return tend to be intimately linked, this practice can obscure the relationship between the two. In the March/April 2008 Financial Analysts Journal Menchero and Poduri demonstrate how to align return attribution and risk attribution into a general framework.

Active return, tracking error and the information ratio are attributed to a user-defined set of factors reflective of the manager’s decision-making process. The attribution can be applied on either an ex ante or an ex post basis.

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See also:

Micro Performance Attribution: Fundamental Factor Model

Types of Benchmarks

Constructing a Custom Security Based Benchmark

Evaluating Investment Manager Performance

Macro Performance Attribution