There are several performance indicators for a portfolio. The Sharpe index is the most common. This index measures the ability of a security or a portfolio of securities to outperform a risk-free asset by comparing it to the overall risk of the investment.
The Sharpe Index also gives an indication of how much “risk premium” is guaranteed by each unit of risk (volatility) contained in the investment.
The performance of a portfolio must be assessed retrospectively, i.e., as soon as the investment data is available. The quality of an investment is not limited to quantitative performance (how much you have “earned”) but must also be measured in terms of risk (how much did I risk achieving this performance?).
However, an assessment is often made before investing. An assessment that’s required by the industry or managers to choose how to invest the amount available.
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