Tuesday, August 26, 2008

Attribution Analysis and its Link to Information Coefficient and Alpha

Hi,

The Information Ration (IR) is a measure of the information captured in the portfolio. The IR changes with the weights within an asset class, which is the same thing that that creates Alpha. The Information Coefficient (IC) is the information capture of the portfolio. Therefore, IC is directly proportional to IR and Alpha.

Attribution Analysis deals with separating and attributing the return due to asset allocation and asset selection. The returns would have an asset allocation component plus the individual asset selection component. This excess returns is a result of information capture and would lead to an IR deviating from 0 as well as such an Alpha.

Please be good to share your thoughts on this.

Best regards, Suminda Sirinath Salpitikorala Dharmasena

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THIS COMMUNICATION OR ANY OTHER POSTS IN THIS BLOG OR ANY BLOG MAINTAINED BY THE AUTHOR DOES NOT CONSTITUTE INVESTMENT ADVICE OR COUNSEL OR SOLICITATION FOR INVESTMENT IN ANY SECURITY.

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