MARKET PARTICIPANTS
                         Portfolio Manager 
             (“PM”) makes decisions about which 
              securities to buy and sell in his/her 
                                portfolio
                BUY-SIDE                      SELL-SIDE
            Buy-side analyst:              Sell-side analyst: 
         reports to PM, delivers      makes recommendations on 
            trade ideas from           stocks in his/her “space”
            research/analysis                Salesperson: 
                                      markets sell-side analyst’s 
             Buy-side trader:         research, recommendations 
             carries out PM’s               to the buy side 
               instructions                Sell-side trader: 
                                      executes trades for buy side
             EVALUATING PERFORMANCE: 
                            TOTAL RETURN
     • Total Return: the percentage change in 
       the value of a security over a specific 
       time horizon
          •  Has two components:
              •   Price appreciation (capital gain)
              •   Dividends (distributions)
     • Individual Security total return analysis
          •  TRA, COMP
          •  Risk-Free Return
          •  Excess Return
   PORTFOLIO RETURN CALCULATIONS
  • Market Value of individual security 
   price * number of shares
  • Market value of portfolio 
   sum of all individual security’s market values
  • Weight of individual security 
   MV of security / MV of portfolio
  • Total return 
   (current value – initial value) / initial value
  • Total return of portfolio
   weighted average (i.e. sum of each security’s 
   weight * TR) 
  • P&L = MV of day 2 – MV of day 1 
         RELATIVE RETURNS
  • A PM uses a benchmark to determine if the 
   return on their portfolio over a specific time 
   period was relatively good or bad
  • Active strategy: Attempt to beat the 
   benchmark in risk-adjusted return 
     ➔ Alpha/Active Return 
  • Passive strategy: Attempt to replicate the 
   risk/return of the benchmark
     ➔ Tracking Error
           RISK MEASURES
  • Beta: correlation of the returns of a stock 
   with the returns of the overall market; 
   BETA, HRA
  • The percent change in price of a stock 
   given a 1% change in the price of the 
   overall market 
    • Beta < 1
    • Beta = 1
    • Beta > 1
  • Portfolio Beta: weighted average