From the course: Financial Portfolio Management Fundamentals

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Performance attribution: Part 1

Performance attribution: Part 1

From the course: Financial Portfolio Management Fundamentals

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Performance attribution: Part 1

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Now that we've established what benchmarks are, we need to look at something called performance attribution. In other words, benchmarks in context. Performance attribution is an exercise to understand where or how your portfolio made or lost money, and hence the name. In the real world, this is a very important exercise for any portfolio manager. It is a backward-looking exercise that entails reviewing and analyzing past performance data. And some examples include attribution to manager, to asset, to strategy, and even to month. There are, however, numerous ways to slice and dice the profits or losses. Now, why is this an important exercise? It is a great and possibly the best way to derive useful information from the portfolio performance data that can guide the fund or manager in how to make profits in the future.

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