VSR (Port)

Performance evaluation
Introduction:-
Performance Evaluation is used to examine a system, to model it
and then to try to change the various parameters in the model.
Usually the model is used to help increase the effectiveness or
efficiency of a system. This article is written to give the reader an
insight into the many aspects of Performance Evaluation.
The portfolio performance evaluation primarily refers to the

determination of how a particular investment portfolio has
performed relative to some comparison benchmark. The
evaluation can indicate the extent to which the portfolio has
outperformed or under-performed, or whether it has performed at
par with the benchmark.
Definition:-
Formal determination of an individual's job-related actions and

their outcomes within a particular position or setting. In financial
trading, its objective is to assess the extent to which the individual
added wealth to the firm and/or its clients, and whether his or her
achievement was above or below the market or industry norms.
also called performance measurement.
PORTFOLIO PERFORMANCE EVALUATION METHODS
(Finance):-
The performance evaluation methods generally fall into two
categories, namely conventional and risk-adjusted methods.
1. Conventional Methods:-
A) Benchmark Comparison:-
The most straightforward conventional method involves

comparison of the performance of an investment portfolio against
a broader market index. The most widely used market index in the
United States is the S&P 500 index, which measures the price
movements of 500 U.S. stocks compiled by the Standard & Poor's
Corporation.
B)Style Comparison :-
A second conventional method of performance evaluation

called ''style-comparison'' involves comparison of return of a
portfolio with that having a similar investment style. While there
are many investment styles, one commonly used approach
classifies investment styles as value versus growth. The ''value
style'' portfolios invest in companies that are considered
undervalued on the basis of yardsticks such as price-to-earnings
and price-to-topic value multiples
2. Risk-adjusted Methods :-
The risk-adjusted methods make adjustments to returns in

order to take account of the differences in risk levels
between the managed portfolio and the benchmark portfolio.
While there are many such methods, the most notables are the
Sharpe ratio (S), Treynor ratio (T), Jensen's alpha (a),
Modigliani and Modigliani (M2), and Treynor Squared (T2).
These measures, along with their applications, are discussed
below.
A) Sharpe Ratio:-
The Sharpe ratio (Sharpe, 1966) computes the risk premium of

the investment portfolio per unit of total risk of the portfolio. The
risk premium, also known as excess return, is the return of the
portfolio less the risk-free rate of interest as measured by the yield
of a Treasury security. The total risk is the standard deviation of
returns of the portfolio.
where S is the Sharpe ratio, rp the return of the portfolio, rf the

risk-free rate, and sp the standard deviation of returns of the
portfolio.
B) Trey nor Ratio:-
The Treynor ratio (Treynor, 1965) computes the risk premium

per unit of systematic risk. The risk premium is defined as in the
Sharpe measure. The difference in this method is in that it uses
the systematic risk of the portfolio as the risk parameter. The
Treynor ratio is given by the following equation:
where T is the Treynor ratio, rp the return of the portfolio, rf the

risk-free rate, and bp the beta of the portfolio.
c) Jensen’s Alpha:-
Jensen's alpha (Jensen, 1968) is based on the Capital Asset

Pricing Model (CAPM) of Sharpe (1964), Lintner (1965), and
Mossin (1966). The alpha represents the amount by which the
average return of the portfolio deviates from the expected return
given by the CAPM. The CAPM specifies the expected return in
terms of the risk-free rate, systematic risk, and the market risk
premium. The alpha can be greater than, less than, or equal to
zero. An alpha greater than zero suggests that the portfolio
earned a rate of return in excess of the expected return of the
portfolio. Jensen's alpha is given by.
d) Modigliani and Modigliani Measure:-
The Sharpe ratio is not easy to interpret. In the example, the

Sharpe ratio for the managed portfolio is 0.50, while that for the
market is 0.45. We concluded that the managed portfolio
outperformed the market. The difficulty, however, is that the
differential performance of 0.05 is not an excess return. Modigliani
and Modigliani (1997) measure, which is referred to as M2,
provides a risk-adjusted measure of performance that has an
economically meaningful interpretation. The M2 is given by
where M2 is the Modigliani-Modigliani measure, rp* the return on

the adjusted portfolio, rm the return on the market portfolio.
E) Treynor Squared:-
Another performance measure, called T2 analogous to M2, can

be constructed. This is a deviant of the Treynor measure, and the
rationale is the same as that of M2. T2 is defined as
where T2 is the Treynor-squared measure, rp* the return on the

adjusted portfolio, and rm the return on the market portfolio.
CONCLUSION:-
The objective of this study is to construct an easy operational model to
evaluate the performance of the Reverse Logistics management. To
fulfill this mission, the main contributions were made as following: a)
Defining the indicators of each factors related with performance of the
RL management. CSFs (Critical Success Factors) method was employed
in this phase. b) Arranging the indicators into an indicator-tree by AHP
(Analytic Hierarchy Process) methods. c) Using the fuzzy evaluation
method build up a fuzzy evaluation model to evaluate the performance
of the RL management in a company. The model presented in this
research showed an easy way to evaluate the performance of RL
management in a company. This should be a better try in this field.

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Performance evaluation

The portfolio performance evaluation primarily refers to the

Formal determination of an individual's job-related actions and

The most straightforward conventional method involves

A second conventional method of performance evaluation

The risk-adjusted methods make adjustments to returns in

The Sharpe ratio (Sharpe, 1966) computes the risk premium of

where S is the Sharpe ratio, rp the return of the portfolio, rf the

B) Trey nor Ratio:-

The Treynor ratio (Treynor, 1965) computes the risk premium

where T is the Treynor ratio, rp the return of the portfolio, rf the

Jensen's alpha (Jensen, 1968) is based on the Capital Asset

d) Modigliani and Modigliani Measure:-

The Sharpe ratio is not easy to interpret. In the example, the

where M2 is the Modigliani-Modigliani measure, rp* the return on

Another performance measure, called T2 analogous to M2, can

where T2 is the Treynor-squared measure, rp* the return on the

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