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I'd like to compare the returns of a portfolio segregated by groups to the returns of those groups in total. So say for example I have a portfolio with 40% Industrials and 60% Technology, then over the the same period the returns of Industrials and Technology were 5% and 10%, respectively.

How can I get some idea of the performance of the portfolio? Or just some ideas on how to measure the performance of a portfolio.

Thanks

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3 Answers 3

up vote 4 down vote accepted

Unless I'm missing something, your question simply boils down to arithmetic as you have the portfolio allocation and sector returns explicitly identified:

Portfolio Return = (Sector 1 Allocation) * (Sector 1 Return) + (Sector 2 Allocation) * (Sector 2 Return) + ... + (Sector n Allocation) * (Sector n Return)

Where the allocations among n sectors add up to 100%.

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Well the portofolio allocation have to be those of the start of the period on which returns have been calculated. @phlsmk I'm also missing something here. –  Zarbouzou Feb 11 '11 at 16:45

Portfolio's return minus the return of a hypothetical tech and industrials portfolio with market weighting. For example, if the total market cap of the industrial sector is twice that of tech then a two sector portfolio using market relative weights would be 66.67% industrials and 33.33% tech.

If you are investing in all sectors then it is as trivial as subtracting the market return from your portfolio's return. This, however won't tell you what, if any alpha you've achieved.

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Since you are comparing return, please don't forget to add dividends or interest paid out [if holding bonds or bondETFs]...most websites give price only returns and the differential can really be significant especially for high dividend stocks or sectors ... such as DVY, XLU , or for Bond ETFs... recently a few apps seem to do this Total Return comparison ... one such is the Returnfinder app...

Rp= w1R1+...wnRn, where w is the fractional weight in each asset, R the return, n is the number of assets and Sum of W's =1; p is the portfolio

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IMO this answer doesn't add much to the accepted answer but manages to mention a certain app: downvoted. –  Bob Jansen Jul 21 at 8:36

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