A finished FIN-451 Topic 7 risk-adjusted attribution report example, splitting a 0.10 point shortfall into allocation, selection and interaction effects, then scoring it on Sharpe, Treynor and Jensen's alpha. Searches like "fin 451 topic 7 assignment example", "fin451 topic 7 sample" and "fin-451 topic 7 example" land here.
What a finished FIN-451 Topic 7 risk-adjusted attribution report looks like
The finished report works from illustrative annualized figures. The portfolio held 65 percent equities and 35 percent bonds against a 60/40 benchmark; its equities returned 9.0 percent against the benchmark's 10.0, its bonds 3.0 against 2.5. The portfolio earned 6.90 percent, the benchmark 7.00. Attribution splits the 0.10 shortfall three ways: the equity overweight added 0.375 points, selection cost 0.40, with equities losing 0.60 and bonds recovering 0.20, and the interaction of the two cost 0.075. Risk comes next, with a 3.0 percent risk-free rate and volatility of 11.0 percent against 10.0. The portfolio's Sharpe ratio is about 0.35 against 0.40; its Treynor measure is about 3.61 against 4.00 at a beta of 1.08; and Jensen's alpha is about minus 0.42, a wider gap than the raw shortfall suggested.
How a FIN-451 Topic 7 example is structured
Return, attribution, risk and judgment are the report's four parts. It opens with the review period's weights and segment returns for portfolio and benchmark, labeled illustrative, and names the attribution method, one that measures allocation against the benchmark's total return. The allocation section credits the equity overweight for favoring the segment that beat the benchmark overall. The selection section shows the equity holdings trailing their segment by a full point while bond selection added half a point. An interaction line is reported rather than buried. The risk section computes volatility, beta and the three measures, and explains which suits which question: Sharpe for a portfolio that is the investor's whole wealth, Treynor for one sleeve inside a diversified whole. A closing judgment reads the numbers together and names the length of record that would make them conclusive.
Weights and returns by segment
Equity and bond returns for the portfolio and the benchmark sit side by side with their weights, so every later effect can be traced to a cell.
Allocation credited 0.375 points
Holding five extra points in equities, the segment that beat the benchmark's total return, added about 0.375 points under the method the report names.
Selection cost the most
Equity holdings trailed their segment by a full point while bonds beat theirs by half, a net selection cost of 0.40 points.
Interaction shown on its own line
Overweighting the segment where selection was weak cost a further 0.075 points, and the report keeps that effect visible rather than folding it elsewhere.
Three measures, three verdicts
Sharpe of 0.35 against 0.40, Treynor of 3.61 against 4.00 and alpha near minus 0.42 all mark the extra risk as unrewarded this period.
A record too short to settle
One review period cannot separate skill from chance, so the report states its findings as observations and names the evidence a longer record would add.
Where marks go in FIN-451 Topic 7
Reports that give the portfolio's return beside the benchmark's and stop earn the least here, since a shortfall of a tenth of a point says nothing about which decision caused it. Attribution that mixes methods, measuring allocation against segment returns in one line and against the total benchmark in another, produces effects that do not add to the active return. Folding interaction into selection without saying so hides a real effect. Papers that praise the portfolio for nearly matching the benchmark miss that it took more risk to do so, which the risk-adjusted measures expose. Using Treynor for a portfolio that is the investor's entire wealth applies a measure built for a diversified component. Drawing firm conclusions about manager skill from one period claims more than the record can carry.
Get a FIN-451 Topic 7 example written to your instructions
Send the FIN-451 Topic 7 instructions and your classroom rubric, with the portfolio and benchmark data your section supplies. We write a custom example to them, with the active return split into allocation, selection and interaction effects that sum correctly, Sharpe, Treynor and alpha computed and explained, and conclusions sized to the record, in 24 to 48 hours. The first one is free.
FIN-451 Topic 7 questions, answered
What is the difference between allocation and selection effects?
The allocation effect measures what the portfolio gained or lost by weighting segments differently from the benchmark, judged by how those segments performed within the benchmark. The selection effect measures what it gained or lost by holding different securities inside each segment. An interaction term captures the two acting together. Reported separately, they show whether a shortfall came from the mix, the holdings or both.
When is Treynor more useful than Sharpe?
Treynor divides excess return by beta, the risk that remains in a diversified portfolio, so it suits a portfolio that is one piece of a larger diversified whole. Sharpe divides by total volatility, so it suits a portfolio representing the investor's entire holdings, where every kind of risk is borne. Jensen's alpha adds a third view: return above what beta alone would predict under the capital asset pricing model.
Can the report evaluate my own portfolio's performance?
Not directly. The weights, returns, risk-free rate and beta are illustrative, arranged so each effect and measure shows clearly and the arithmetic can be checked. Evaluating a real portfolio needs its actual holdings, a benchmark agreed in advance and a long enough record. The report demonstrates FIN-451 attribution work and offers no opinion on any real manager, fund or account.