ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Monitoring a Stock Portfolio's Performance

Updated on January 18, 2016
one2get2no profile image

Philip retired from investment banking to write. To date he has written 9 books on trading forex, 3 short stories, and one poetry book.

The final step in the stock portfolio investment process is to monitor the portfolio's performance and compare the performance to that of a benchmark. The primary task in this hub is to give you ideas on how to measure the entire portfolio's return and relate it to the risks incurred in achieving that return.

Let's take a look at the index portfolio below. From the information given, we are going to calculate the holding period return for the portfolio. The holding period is the length of time an asset is held by the investor and the return is the profit gained over that period.

The Holding Period Return on a Portfolio

The holding period return of an investment is given by the formula below. You will notice from the formula. that you must include any and all dividends received, in the calculation.

Holding Period Return

Let's take a look at the index portfolio below and from the information we have we are going to calculate the holding period return for the portfolio.

Index Portfolio

If we follow the formula the calculation would be this:

($1,110,983.35 - $1,000,000) = $110,983.35

= $110,983.35 + $13,720.20 = $124,703.55

= $124,703.55 / $1,000,000 = 12.50%

The way we get the beginning and closing market values is by multiplying the number of shares by the share price at the beginning of the period and at the end of the period. The dividend income is the worked out by multiplying the dividend by the number of shares.

Usually, though, we are concerned about the return of a portfolio over several periods. A portfolio's rate-of-return is not simply the average of rate of return over several individual periods. Instead, we must calculate the portfolio’s average compound rate-of-return.

To understand the difference, look at both of these formulas and the portfolio. The simple average weighs a given percentage increase the same as a given percentage decrease.

Simple Average: (11.3 + 20.0 + 0.0 - 11.1 - 15.8) / 5 = 0.88 percent

Compound Average: (1.113*1.20*1.0*0.889*0.842)1/5 - 1 = 0.00 percent

Average Simple Return/Compound Return

Take the above set of returns with our portfolio that has a beginning value of $1 million. Notice that the simple rate of return indicates a 0.88 percent average gain over the 5 years. However, the portfolio at the end of 1995 has the same value of $1 million. The compound rate of return shows us an average compound gain of 0.

By the way, a return that is – 11.1 is converted to ‘1’ by adding moving the point back two decimal places and taking away the minus sign = 0.111 and adding 0.889 so it equals 1.

Let’s look at the following returns and see the results of the calculation of the annual portfolio for the 5 year period using both the simple average and the compound average.

Return Over Portfolio Value

Simple R = 15-8.4-2.2+5.6+20.7 / 5 = 6.1%

Compound R = (1.15*0.916*0.978*1.056*1.207) 1/5 - 1 = 5.6%

In evaluating performance, investors must compare the average compound return against the market performance. Therefore the policy statement should reveal the benchmark index to which the actual performance should be compared. The most common index used as a benchmark for large capitalization stock portfolios is the S&P 500 Index.

It is important to also evaluate the risk level assumed in achieving the portfolio return. Managers generally use the CAPM as a basis for comparing risk. Thus, they use the portfolio's beta as a measure of relative risk.

Portfolio Beta

A Beta which is greater than one indicates that the stock moves in the direction of the market but in a bigger amount than the market.

Many clients, in particular institutional investors, have fiduciary responsibilities. In addition to investment performance, they will evaluate the portfolio manager's skill at allocating capital and selecting securities adherence to their investment policy, and the impact of transaction costs and management fees. Investment performance evaluation is, therefore, only one aspect of monitoring progress towards goals and modifying investment objectives.


    0 of 8192 characters used
    Post Comment

    • MohsinGhafoor profile image

      Mohsin Ghafoor 

      5 years ago from Islamabad

      Nice Hub...


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)