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Use the following table to answer questions below: Portfolio ABC XYZ Benchmark Annual return 12% 10% 10% Annualized risk 15% 8% 5% Active risk 5%
- Use the following table to answer questions below:
Portfolio | ABC | XYZ | Benchmark |
Annual return | 12% | 10% | 10% |
Annualized risk | 15% | 8% | 5% |
Active risk | 5% | 3% |
|
No Independent decisions | 20 | 8 |
|
Transfer coefficient | 0.80 | 0.60 |
|
Information Ratio | 13.33% | 0% |
|
Information Coefficient | ? | ? |
|
|
|
|
|
Factor exposure | ABC | XYZ |
|
Market | 1.08 | 0.84 |
|
Size | -0.15 | 0.25 |
|
Value | 0.04 | 0.30 |
|
Momentum | 0.15 | -0.20 |
|
Quality | 0.35 | 0.05 |
|
- Discuss the fundamental law of active portfolio management. Calculate the information ratio and information coefficient for ABC and XYZ. How would you use these metrics to assess the quality of active management? Also compare and contrast information ratio and its usefulness to Sharpe ratio, Treynor ratio, and Jensens alpha (conceptually).
- b. Discuss factor based portfolio performance analysis. Discuss factor exposures of each fund. What style each fund is pursuing and why? The intercept is not given but what is a desirable intercept and why?
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