Risk Adjusted Rate of Return for a portfolio – Part 1
Years ago, investors evaluated Portfolio Performance almost entirely on the basis of the Rate of Return. Investors were aware of the concept of Risk, But were uncertain how to quantify or measure it. Developments in Modern Portfolio Theory in the 1960s showed investors how to quantify and measure risk in terms of the variability of returns.
At first, Risk and Return had to be measured independently; Analysts grouped portfolios into similar risk classes then compared the Rates of Return within these classes.
Subsequently, major composite measures of Portfolio Performance were developed that combine Risk and Return.
Rest in the next post – Part 2.
