What is portfolio evaluation?
                     WHAT IS 
PORTFOLIO 
EVALUATION?
INTRODUCTION
 Portfolio evaluating refers to the evaluation of the 
performance of the investment portfolio. 
 It is essentially the process of comparing the return 
earned on a portfolio with the return earned on one or 
more other portfolio or on a benchmark portfolio. 
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FUNCTIONS
 Portfolio performance evaluation essentially comprises 
of two functions, performance measurement and 
performance evaluation. 
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PERFORMANCE 
MEASUREMENT
 Performance measurement is an accounting function 
which measures the return earned on a portfolio 
during the holding period or investment period.
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PERFORMANCE EVALUATION
 Performance evaluation, on the other hand, address 
such issues as whether the performance was superior 
or inferior, whether the performance was due to skill 
or luck etc.
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INVESTOR
 The ability of the investor depends upon the 
absorption of latest developments which occurred in 
the market. 
 The ability of expectations if any, we must able to 
cope up with the wind immediately.
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INVESTMENT ANALYSIS
 Investment analysts continuously monitor and 
evaluate the result of the portfolio performance. The 
expert portfolio constructor shall show superior 
performance over the market and other factors.
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CRITERIA
 The performance also depends upon the timing of 
investments and superior investment analysts 
capabilities for selection. The evolution of portfolio 
always followed by revision and reconstruction. 
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SHARPE’S MEASURE
 Sharpe’s Index measure total risk by calculating 
standard deviation. The method adopted by Sharpe is 
to rank all portfolios on the basis of evaluation 
measure. Reward is in the numerator as risk premium. 
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TREYNOR’S MEASURE
 The Treynor’s measure related a portfolio’s excess 
return to non-diversifiable or systematic risk.
 It is the risk measure of standard deviation, namely 
the total risk of the portfolio is replaced by beta. 
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JENSEN’S MEASURE
 Jensen attempts to construct a measure of absolute 
performance on a risk adjusted basis. This measure is 
based on Capital Asset Pricing Model (CAPM) model. 
 It measures the portfolio manager’s predictive ability 
to achieve higher return than expected for the 
accepted riskiness.
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