Important Hedge Fund Performance Metrics To Better Manage Investments

Hedge fund performance can have a huge bearing on the performance of investment portfolios overall. If you are an investor with hedge fund holdings, you certainly want to be concerned with how those hedge funds are performing. But, researching current hedge fund performance for your Tweedy Browne funds is not enough. Savvy investors should also know the metrics that determine hedge fund performance ratings. That way, you can have a comprehensive understanding of your investment portfolio performance. Find out the hedge fund performance metrics that determine the viability of your investments in this post.

Alpha Measurements

The figure alpha is frequently used to gain insight into hedge fund performance. The alpha figure is used to measure excess return as compared to a set benchmark. Typically, this benchmark is the hedge fund performance of the market to which a hedge fund is apart. But, there could be other benchmarks that are used to determine alpha excess returns for top hedge funds. If you are determining hedge fund performance for your own investments, be sure to figure out the alpha figures associated with your hedge fund investments.

Sharpe Ratio

The Sharpe ratio is also another metric used to determine hedge fund performance. This ratio measures hedge fund return as adjusted for the amount of risk inherent in the investment. The Sharpe ratio mathematical calculation makes it possible to compare hedge fund performance for two funds of varying risk levels. That is why it is such a useful metric for hedge fund performance calculations. This figure helps investors like you determine whether the risk/reward ratio of your hedge fund investments is comparable to similar investment opportunities, not unrelated high yield bonds with far less risk. That is why this is a crucial metric for you to keep in mind to determine whether your investments are sound.

Sortino Ratio

The Sortino ratio is one of the hedge fund performance metrics that investors can use to analyze their investments. This Sortino ratio is very similar to the Sharpe ratio metric. However, this ratio penalizes downside deviations, whereas the Sharpe ratio penalizes all deviations entirely. That is why many market analysts believe that the Sortino ratio is an improved version of the Sharpe ratio. This is important to note if you are trying to calculate hedge fund performance for your own holdings. You may wish to use the Sortino ratio metric instead of the Sharpe alternative to determine investment performance.

Simple Returns

Hedge fund performance can also be determined by calculating hedge fund returns. This is one of the simplest metrics used to determine hedge fund investment performance for stateside and overseas market holdings. How much of a return on investment did a particular hedge fund account produce? If returns are high, then the hedge fund is performing well. If returns are low, the hedge fund may be performing poorly. For those investors looking for the simplest way to understand hedge fund performance rankings, the returns metric is the best one to use to calculate hedge fund performance for your investments.

Maximum Drawdown

Maximum drawdown metrics help market experts determine hedge fund performance ranks. Hedge fund maximum drawdown is the figure that represents the largest decline in hedge fund performance from a high to a low. These hedge fund performance measurements help investors anticipate future downturns. Of course, future downturns could prove worse than existing hedge fund maximum drawdown metrics. However, this is still a great calculation to use to determine the viability of your investment opportunities in the future. That is why this is such an important hedge fund performance measurement to have knowledge of.

Not all investors have hedge fund holdings. But for those that do, tracking hedge fund performance is crucial. It will help you decipher the best hedge fund investment opportunities for your portfolio. It will also help you know when its time to cash in hedge fund investments and sell off hedge fund holdings. If you are a hedge fund investor, use this post as a guide to the most important hedge fund performance metrics used to determine these rankings. These hedge fund performance measurements will help you get a better picture of your investment portfolio to make the best investment decisions possible. This is sure to improve your investment returns. Make sure you keep this in mind.

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