Purpose of Benchmark in Performance Evaluation

Easy Performance Evaluation Benchmarking

In portfolio management, benchmarking is crucial for evaluating the performance of an investment portfolio. A benchmark is typically a standard or point of reference against which the performance of a security or a portfolio can be measured. Which of the following statements best describes the purpose of a benchmark in performance evaluation?

A benchmark provides a comparison to assess whether a portfolio has outperformed or underperformed a specific market segment.

A benchmark is an absolute target return that portfolios must meet to be considered successful.

A benchmark is primarily used to calculate the total risk of a portfolio based on market volatility.

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