(a)You have been provided one-year data for an active portfolio and a benchmark portfolio. You have to write report wherein you are supposed to compare and contrast the active portfolio performance with the benchmark.

In your report, you need to discuss the following: Portfolio return and risk, Benchmark return and risk, active return, active risk/tracking error and allocation and selection effect.

Portfolio

Benchmark

Standard Deviation

29.932

29.969

Beta

0.998

1.000

Sharpe Ratio

-0.964

-0.950

Treynor Ratio

-0.289

-0.285

Information Ratio

-0.163

n/a

Tracking Error

1.438

n/a

Portfolio return

-15.842%

Benchmark return

-15.607%

Allocation Effect

0.217%

Selection Effect

-0.452%

Total Effect

-0.235%

Weight Difference

(Portfolio weight- Benchmark weight)

Allocation Effect

Selection Effect

Total Effect

Energy

-0.79%

0.096%

0.000%

0.096%

Materials

-0.94%

-0.079%

0.082%

0.004%

Industrials

-2.19%

-0.202%

-0.057%

-0.259%

Consumer Discretionary

0.82%

0.089%

0.000%

0.089%

Consumer Staples

0.98%

0.084%

0.000%

0.084%

Health Care

3.08%

0.911%

0.000%

0.911%

Financials

4.82%

-0.678%

-0.121%

-0.799%

Communication Services

-3.44%

-0.067%

0.000%

-0.067%

Real Estate

-2.35%

0.064%

-0.357%

-0.293%

(b)Suppose your cousin invests in the stock market and doubles her money in a single year while the market, on average, earned a return of only about 15%. Is your cousin's performance a violation of market efficiency?

(c)What information about a company's prospects can be inferred if its directors are reported to be buying the firm's shares?