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What Are the Key Performance Metrics for Evaluating Your Investment Portfolio?

When you want to check how well your investments are doing, some key numbers can really help. These numbers show if your investment plan is working or if you need to make changes. Here are some important metrics to consider:

1. Return on Investment (ROI)
ROI tells you how much money you made from your investments compared to what you spent. You can figure it out like this:
ROI=Net ProfitCost of Investment×100\text{ROI} = \frac{\text{Net Profit}}{\text{Cost of Investment}} \times 100
A high ROI means that your investments are doing well.

2. Sharpe Ratio
The Sharpe ratio helps you see if the return on your investments is worth the risk. It's found by this formula:
Sharpe Ratio=Portfolio ReturnRisk-Free RateStandard Deviation of Portfolio Return\text{Sharpe Ratio} = \frac{\text{Portfolio Return} - \text{Risk-Free Rate}}{\text{Standard Deviation of Portfolio Return}}
A bigger Sharpe ratio means that you're being rewarded more for the risk you're taking.

3. Alpha
Alpha shows how much more or less money you made from your investments compared to a standard measure, like a stock market index. If alpha is positive, it means you're doing better than the market. If it's negative, it's not as good. This number is important for checking how well your investment manager is doing.

4. Beta
Beta measures how much your investment changes compared to the overall market. If your beta is more than 1, your investment is more volatile than the market. If it's less than 1, it’s less volatile. This helps you understand the risk of your portfolio compared to the market.

5. Standard Deviation
Standard deviation shows how much your investment returns can vary over time. A high standard deviation means more uncertainty, which could lead to higher gains or bigger losses. It helps you grasp how much your investments can change.

6. Treynor Ratio
Like the Sharpe ratio, the Treynor ratio looks at the return of your investments compared to the risk. It uses beta to show risk:
Treynor Ratio=Portfolio ReturnRisk-Free RateBeta\text{Treynor Ratio} = \frac{\text{Portfolio Return} - \text{Risk-Free Rate}}{\text{Beta}}
This number is useful for seeing how well you're doing against risks from the market itself.

When you look at all these metrics together, you get a complete picture of how your portfolio is performing. This helps you make smart decisions about your investments while managing both risk and return effectively.

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What Are the Key Performance Metrics for Evaluating Your Investment Portfolio?

When you want to check how well your investments are doing, some key numbers can really help. These numbers show if your investment plan is working or if you need to make changes. Here are some important metrics to consider:

1. Return on Investment (ROI)
ROI tells you how much money you made from your investments compared to what you spent. You can figure it out like this:
ROI=Net ProfitCost of Investment×100\text{ROI} = \frac{\text{Net Profit}}{\text{Cost of Investment}} \times 100
A high ROI means that your investments are doing well.

2. Sharpe Ratio
The Sharpe ratio helps you see if the return on your investments is worth the risk. It's found by this formula:
Sharpe Ratio=Portfolio ReturnRisk-Free RateStandard Deviation of Portfolio Return\text{Sharpe Ratio} = \frac{\text{Portfolio Return} - \text{Risk-Free Rate}}{\text{Standard Deviation of Portfolio Return}}
A bigger Sharpe ratio means that you're being rewarded more for the risk you're taking.

3. Alpha
Alpha shows how much more or less money you made from your investments compared to a standard measure, like a stock market index. If alpha is positive, it means you're doing better than the market. If it's negative, it's not as good. This number is important for checking how well your investment manager is doing.

4. Beta
Beta measures how much your investment changes compared to the overall market. If your beta is more than 1, your investment is more volatile than the market. If it's less than 1, it’s less volatile. This helps you understand the risk of your portfolio compared to the market.

5. Standard Deviation
Standard deviation shows how much your investment returns can vary over time. A high standard deviation means more uncertainty, which could lead to higher gains or bigger losses. It helps you grasp how much your investments can change.

6. Treynor Ratio
Like the Sharpe ratio, the Treynor ratio looks at the return of your investments compared to the risk. It uses beta to show risk:
Treynor Ratio=Portfolio ReturnRisk-Free RateBeta\text{Treynor Ratio} = \frac{\text{Portfolio Return} - \text{Risk-Free Rate}}{\text{Beta}}
This number is useful for seeing how well you're doing against risks from the market itself.

When you look at all these metrics together, you get a complete picture of how your portfolio is performing. This helps you make smart decisions about your investments while managing both risk and return effectively.

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