Risk-Adjusted Performance Evaluation of Equity Portfolio

The investment firm XYZ Capital has been evaluating the performance of its diversified equity portfolio which has been managed over the past three years. The portfolio comprises large-cap, mid-cap, and small-cap U.S. equities. During this time, the portfolio generated an annualized return of 10.5%, while the benchmark – a broad market index made up of similar equities – returned 8.0%. The standard deviation of the portfolio’s returns was 15%, and the beta of the portfolio relative to the benchmark was 1.2.

In addition to these performance metrics, XYZ Capital wishes to assess the portfolio's risk-adjusted performance comprehensively. Utilize the Sharpe ratio, Treynor ratio, and Jensen’s alpha to evaluate the portfolio’s performance in relation to its risk. Discuss the implications of these ratios with respect to investment decisions, considering both the absolute performance and the risk taken to achieve that performance.