How to Select a Portfolio Performance Measure?

43 Pages Posted: 23 Sep 2020

See all articles by Pascal Francois

Pascal Francois

HEC Montreal - Department of Finance

Georges Hübner

HEC Liège

Date Written: August 10, 2020


This paper reviews the main dimensions underlying the selection of a classical portfolio performance measure, namely the Sharpe Ratio, Jensen’s alpha, the Modified Jensen’s alpha, the Treynor Ratio, and the Information Ratio. We first examine how they differ from each other according to the risk (input of performance) and measurement (link between input and output) dimensions. Next, we analyze, from the point of view of the investor, which type of risk (total, systematic, and specific) should be used as the input of performance evaluation. We distinguish the normative approach, in which the investor tries to optimize her portfolio choice, with the positive approach, for which the asset allocation is supposed to be given. We also address the issue of the selection of the appropriate measure from the portfolio manager’s point of view. We show that it primarily depends on the stability of rankings produced with the selected measure. Numerical illustrations of these selection criteria are provided through a simplified, yet realistic example.

Keywords: Portfolio Performance, Sharpe Ratio, Jensen's alpha, Treynor Ratio, Information Ratio, Peer Group Comparison

JEL Classification: G11, G12, G14, C12, B26

Suggested Citation

Francois, Pascal and Hübner, Georges, How to Select a Portfolio Performance Measure? (August 10, 2020). Available at SSRN: or

Pascal Francois

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
514-340-7743 (Phone)
514-340-5632 (Fax)

Georges Hübner (Contact Author)

HEC Liège ( email )

Rue Louvrex 14, Bldg. N1
Liege, 4000
+32 42327428 (Phone)

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