Benchmark

Benchmark is a standard or reference point against which the performance of an investment or portfolio is measured.

A benchmark can be used to evaluate the performance of a particular asset, such as a stock or bond, or an entire portfolio of investments. It is typically a well-known and widely followed index, such as the S&P 500, that represents the performance of a specific market or asset class.

Benchmarks are also used to calculate risk metrics like Sharpe, Alpha Ratio or Beta for securities and portfolios.

Examples:

  1. S&P 500 Index: This is a benchmark that represents the performance of 500 large-cap U.S. companies across various sectors, and is widely used to evaluate the performance of U.S. equities.
  2. Barclays Capital U.S. Aggregate Bond Index: This is a benchmark that represents the performance of the U.S. investment-grade bond market, and is used to evaluate the performance of fixed-income investments.
  3. MSCI EAFE Index: This is a benchmark that represents the performance of companies in developed markets outside of North America, including Europe, Asia, and Australia.
  4. Russell 2000 Index: This is a benchmark that represents the performance of 2,000 small-cap U.S. companies, and is used to evaluate the performance of small-cap equities.
  5. Dow Jones Industrial Average: This is a benchmark that represents the performance of 30 large-cap U.S. companies across various sectors, and is often used as a barometer for the overall health of the U.S. economy.