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Zeus case study Essay

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Introduction
This report is aim to analyse the benefits of risk-adjusted performance measurements to Zeus Asset Management. Zeus Asset Management is a fund management firm founded in 1968 in Atlanta by Tir Jerry Schneider. It serves both institutional and individual investors and with more than $1.7 million assets under management. The director of research, John Abbot, is considering adopting risk-adjusted approach in performance assessment.
Zeus’s competitiveness analysis
Zeus’s main competitors are the mutual funds in particular market. Compared with those competitors, Zeus has strong competitive advantages.
Firstly, different from many managed funds of actively trading, Zeus’s investment philosophy is based on the belief that …show more content…

Absolute measures usually includes the holding period return (HPR) and the present value of future return. Absolute measurements are easy to calculate and reflect the earning ability of a portfolio. However, they do not capture the risks associated with the investment portfolios. Investors may be misled if only looking at those measurements since one high-return portfolio may have high risks and do not match with their risk tolerance.
The simplest and most popular way to adjust returns for risk is to compare the portfolio’s return with the returns on a comparison universe, which is often called relative measurements. It is calculated by comparing the HPR to that of a benchmark, which can be either an index or a similar company figure. It is simple to use but choosing the appropriate benchmark is also crucial as different benchmark will lead to totally different results and hence affect the investment decisions.
Risk-adjusted return measurements
Risk-adjusted return measurements are usually considered superior than absolute measurements since they take the risks into consideration. Specific methods of adjusting the returns for risks include the Sharpe Ratio, Treynor Ratio, Jensen’s Alpha, beta, and information ratio.
Sharpe Ratio measures the portfolio risk premium for each unit of total risk. It is calculated using the formula: . It is simple to calculate and can be used to compare portfolios with different risks.

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