Benchmark Definition.

A benchmark is a standard against which the performance of a security, investment portfolio, or investment manager can be measured. Benchmarks are often used to evaluate the performance of an investment relative to a market index or other standard. What is benchmark value? A benchmark value is a number that represents the performance of a portfolio or security. It is used as a point of comparison to measure the performance of an investment. What are the 5 types of benchmarking? There are 5 types of benchmarking:

1. Process benchmarking
2. Product benchmarking
3. Functional benchmarking
4. Organizational benchmarking
5. IT benchmarking What are the 4 types of benchmarking? 1. Process or Functional Benchmarking
2. Industry Benchmarking
3. Competitive Benchmarking
4. Financial Benchmarking How is benchmark calculated? Benchmarking is the process of comparing the performance of a portfolio or investment manager to a suitable market index or peer group. The most common indexes used for benchmarking equity portfolios are the S&P 500 in the United States and the FTSE 100 in the United Kingdom. For fixed income portfolios, the benchmark is often a government bond index.

There are a number of ways to measure performance, but the most common is to calculate the excess return of the portfolio or manager relative to the benchmark. The excess return is simply the difference between the portfolio's return and the return of the benchmark index. For example, if a portfolio earned a return of 10% last year and the benchmark index earned a return of 8%, then the excess return would be 2%.

One way to think about excess return is that it is the return that is above and beyond what would be expected given the riskiness of the portfolio. In other words, it is the return that is generated by the skill of the manager rather than by luck or the performance of the overall market.

Of course, excess return is only one way to measure performance. Other common measures include the Sharpe ratio, which measures the risk-adjusted return of a portfolio, and the alpha, which measures the return of a portfolio relative to a risk-adjusted benchmark.

Why is it called benchmark?

A benchmark is a standard by which something can be measured. In the world of investing, a benchmark is used to compare the performance of a particular security or portfolio of securities to a specific market index or group of securities.

The term "benchmark" can also be used more broadly to refer to any metric used to evaluate the performance of an investment. For instance, an investor might compare the return of their stock portfolio to the S&P 500 index to get a sense of how their investments have performed relative to the broader market.