Tag
#portfolio-metrics
29 articles
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Buy and Hold vs Strategy Returns: The Baseline Every Backtest Must Beat
Buy and hold return is the benchmark result you would have earned doing nothing. It is the honest baseline for any strategy, and it is a hard bar to clear.
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CAGR vs XIRR vs Absolute Returns: Which One Is Correct?
Absolute return measures total change, CAGR annualises a single lumpsum, and XIRR annualises a series of irregular cashflows. Cashflow timing decides which is correct.
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Downside Deviation Explained: Measuring Only the Volatility That Hurts
Downside deviation measures how far returns fall below a chosen minimum, ignoring upside variation entirely. It is the denominator that makes the Sortino ratio different from Sharpe.
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Factor Investing in India: What Factors Are and How They Are Measured
Factor investing groups stocks by measurable characteristics such as value, momentum, quality, size and low volatility, then studies how those groups behave over time.
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How to Backtest a Stock Strategy in India: An End-to-End Walkthrough
Backtesting a stock strategy in India means testing explicit rules on historical data that was actually knowable at each date, with realistic costs, a fair benchmark, and honest reporting.
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Portfolio and Backtest Metrics, Explained: The Complete Guide
A plain-language guide to the metrics behind portfolio and strategy analysis: risk-adjusted returns, drawdown, factors, backtesting, and the market data behind them.
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Portfolio Turnover Explained: What Drives It, and What It Costs
Portfolio turnover measures how much of a portfolio was traded over a year. It drives transaction costs and the timing of taxable gains, so it belongs next to every return figure.
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Risk Adjusted Returns Explained: Why Raw Return Is Never the Whole Answer
A risk adjusted return measures how much return was earned per unit of risk taken. It exists because two portfolios with the same return can involve completely different risk.
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Rolling Returns Explained: Why They Beat Point-to-Point Returns
Rolling returns measure performance over every possible window of a chosen length, not one start and end date. They expose consistency that a single headline number hides.
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Sharpe vs Sortino vs Calmar: Which Risk-Adjusted Ratio Answers Which Question?
Sharpe, Sortino and Calmar all divide return by risk, but each defines risk differently: total volatility, downside volatility, and worst peak-to-trough loss.
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Upside and Downside Capture Ratio, Explained
Upside and downside capture ratios measure how much of a benchmark's gains and losses a portfolio picked up. Read as a pair, they describe a portfolio's asymmetry.
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Volatility and Standard Deviation Explained: What They Really Measure
Volatility is the standard deviation of returns, a measure of how widely returns scatter around their average. It captures variability, which is not the same thing as risk.
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What Is Alpha in Investing? Return Beyond the Benchmark, Explained
Alpha is the return a portfolio earned beyond what its benchmark exposure and risk already explain. It is a residual, and it depends entirely on the benchmark chosen.
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What Is Beta in Investing? Sensitivity to the Market, Explained
Beta measures how much a stock or portfolio tends to move when the market moves. It is estimated by regression against an index and is routinely misread as a quality score.
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What Is CAGR? Compound Annual Growth Rate, Explained
CAGR is the compound annual growth rate: the single steady yearly rate that would take a starting value to an ending value. It smooths the path completely.
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What Is the Calmar Ratio? Return Measured Against Maximum Drawdown
The Calmar ratio divides annualised return by the worst peak-to-trough fall over the same period. It is a pain-adjusted measure of whether the return justified the depth.
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What Is the Information Ratio? Active Return per Unit of Tracking Error
The information ratio divides a portfolio's return above its benchmark by the volatility of that difference. It measures consistency of outperformance, not its size.
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What Is Maximum Drawdown? The Largest Peak to Trough Fall, Explained
Maximum drawdown is the largest fall from a portfolio's peak value to the lowest point that follows. It measures the worst loss an investor actually had to sit through.
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What Is Overfitting in Backtesting? Curve-Fitting, Parameters and How to Detect It
Overfitting in backtesting is tuning a strategy until it describes the noise in one sample of history rather than any durable pattern. It looks like a great result and behaves like a coin flip.
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What Is the Sharpe Ratio? Excess Return per Unit of Risk, Explained
The Sharpe ratio measures how much return a portfolio earned above the risk-free rate for each unit of total volatility it took on. Higher is generally better.
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What Is the Sortino Ratio? Return per Unit of Downside Risk
The Sortino ratio divides excess return by downside deviation instead of total volatility, so only losses count as risk. It is the fairer measure for asymmetric strategies.
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What Is the Low Volatility Factor? The Low Vol Anomaly, Explained
The low volatility factor tilts a portfolio towards steadier stocks. It exists because calmer shares have historically not been punished the way risk theory expected.
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What Is the Momentum Factor? Lookback Windows and Crash Risk
The momentum factor ranks stocks by their own past price trend over a lookback window, usually skipping the most recent month, and holds the strongest performers.
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What Is the Quality Factor? Profitability, Stability and Leverage
The quality factor ranks stocks on measurable business characteristics: profitability, earnings stability and balance sheet strength, then holds the highest scoring names.
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What Is the Size Factor? The Small Cap Premium and Its Caveats
The size factor tilts a portfolio towards smaller companies. The historical small cap premium is real in the data but heavily qualified by liquidity, survivorship and cost.
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What Is the Value Factor? Cheapness Measures and Value Traps
The value factor ranks stocks by how cheap the price looks against a fundamental anchor such as earnings, book value, sales or cash flow, then holds the cheapest slice.
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What Is Tracking Error? How Far a Portfolio Drifts From Its Benchmark
Tracking error measures how much a portfolio's returns vary from its benchmark's returns. It is the standard deviation of the return difference, usually stated per year.
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What Is the Treynor Ratio? Excess Return per Unit of Market Risk
The Treynor ratio divides excess return by beta rather than by total volatility, so it measures reward per unit of market risk alone. Useful for portfolios held inside a larger whole.
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What Is Value at Risk? VaR in Plain Language, and the Tail It Hides
Value at Risk estimates the loss a portfolio is unlikely to exceed over a set horizon at a set confidence level. Its famous weakness is what happens beyond that threshold.
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