Performance measures answer different questions. They should be calculated over a stated period with a relevant benchmark and consistent data.
Return measures
- Point-to-point return compares opening and closing value.
- CAGR annualises growth between two values over time.
- XIRR is a money-weighted measure for dated cash flows.
- Time-weighted return separates portfolio performance from the timing of external cash flows.
Risk measures
Volatility describes variation in periodic returns. Sharpe ratio compares excess return with volatility using a risk-free-rate input. Alpha depends on a benchmark and model. Beta describes sensitivity to the chosen market benchmark.
The risk-free rate is a dated input, not a permanent 6% or 7% constant. Results can change with the measurement period, benchmark, frequency, fees and cash-flow treatment.
A higher historical return or ratio does not establish future performance or a fund-selection conclusion. Use the measures to understand what occurred, then separately review mandate, holdings, costs, tax, liquidity and risk.