Modigliani {PerformanceAnalytics} | R Documentation |
Modigliani-Modigliani measure
Description
The Modigliani-Modigliani measure is the portfolio return adjusted upward or downward to match the benchmark's standard deviation. This puts the portfolio return and the benchmark return on 'equal footing' from a standard deviation perspective.
MM_{p}=\frac{E[R_{p} - R_{f}]}{\sigma_{p}}=SR_{p} * \sigma_{b} +
E[R_{f}]
where SR_{p}
- Sharpe ratio, \sigma_{b}
- benchmark
standard deviation
Usage
Modigliani(Ra, Rb, Rf = 0, ...)
Arguments
Ra |
an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns |
Rb |
return vector of the benchmark asset |
Rf |
risk free rate, in same period as your returns |
... |
any other passthrough parameters |
Details
This is also analogous to some approaches to 'risk parity' portfolios, which use (presumably costless) leverage to increase the portfolio standard deviation to some target.
Author(s)
Andrii Babii, Brian G. Peterson
References
J. Christopherson, D. Carino, W. Ferson. Portfolio
Performance Measurement and Benchmarking. 2009. McGraw-Hill, p. 97-99.
Franco Modigliani and Leah Modigliani, "Risk-Adjusted Performance: How to
Measure It and Why," Journal of Portfolio Management, vol.23, no.,
Winter 1997, pp.45-54
See Also
Examples
data(managers)
Modigliani(managers[,1,drop=FALSE], managers[,8,drop=FALSE], Rf=.035/12)
Modigliani(managers[,1:6], managers[,8,drop=FALSE], managers[,8,drop=FALSE])
Modigliani(managers[,1:6], managers[,8:7], managers[,8,drop=FALSE])