23. Performance Attribution
Introduction
As evident by the name, the goal of performance attribution is to attribute a portfolio’s return to a set of specific factors or sectors. This process aids a portfolio manager or investor to better understand the performance of the portfolio by breaking down the return and identifying sources of return and risk. Attribution can be done on an absolute or relative basis. Absolute attribution, more commonly referred to as return contribution, seeks to identify the largest contributors of return independent of any benchmark. The contribution of Sector A is defined as:
Where:
Wi = weight of asset i in Sector ...
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