Sample interview questions: What criteria do you use to evaluate the performance of an investment strategy?
Sample answer:
Criteria for Evaluating Investment Strategy Performance:
1. Risk-Adjusted Returns:
– Assess the strategy’s performance relative to its risk profile.
– Use metrics such as Sharpe ratio and Sortino ratio to measure excess returns adjusted for volatility.
2. Consistency and Stability:
– Evaluate the strategy’s ability to generate returns over various market conditions and time frames.
– Look for strategies that exhibit stable returns and low volatility over time.
3. Alpha Generation:
– Determine whether the strategy outperforms the benchmark or a relevant index.
– Calculate the alpha coefficient to measure excess returns that cannot be attributed to market exposure.
4. Correlation and Diversification:
– Assess how the strategy’s returns correlate with other investments in the portfolio.
– Seek strategies that provide diversification benefits and reduce overall portfolio risk.
5. Drawdowns and Recovery:
– Analyze the maximum loss experienced by the strategy and the time it takes to recover from significant declines.
– Consider s… Read full answer
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