Relative Return

Relative Return is the difference between the absolute return achieved by the asset and the return achieved by a designated benchmark. The benchmark can be anything from the performance of a similar asset to an entire stock index. 

Relative Return

Relative Return is the difference between the absolute return achieved by the asset and the return achieved by a designated benchmark. The benchmark can be anything from the performance of a similar asset to the performance of an entire stock index. The choice of benchmark depends upon the investor.

 


Relative Return Formula

Explanation of Relative Return

In active portfolio management, the aim of the fund manager is to maximize the relative return of the fund. In passive portfolio management, the aim of the fund manager is to invest in securities which mimic the performance of the benchmark, thus providing a relative return as close to zero as possible. Relative return is useful as it provides an investor with some insight as to how a fund manager is performing relative to an established baseline.


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