Measuring performance
Performance attribution
Breaking a return down into where it actually came from.
How it works
Attribution separates the contribution of asset allocation, security selection, currency and timing. It answers whether a good year came from being in the right market or from picking the right names within it.
For a private investor the simplest useful version is contribution by holding: each position’s return multiplied by its weight, which shows which handful of names actually decided the year.
Worked example
A holding at 5% weight that rose 40% contributed 2 points. One at 30% weight that rose 6% contributed 1.8. The first felt more dramatic; they mattered about equally.
Related terms
- WeightHow much of your portfolio one holding represents, as a percentage of the total value.
- BenchmarkThe index or reference portfolio you measure yourself against, to see whether your decisions added anything.
- AlphaReturn above what the risk taken would ordinarily have earned — the part attributable to skill.
- Contribution to returnHow many percentage points of the portfolio’s total return one holding was responsible for.
More in Measuring performance
- Price return
- Overfitting
- Real return
- Out-of-sample testing
- Realised profit and loss
- Nominal return
- Risk-free rate
- Money-weighted return
All 29 Measuring performance terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.