Which method is commonly used to assess investment performance?

The commonly used method to assess investment performance is beta. Beta measures the sensitivity of an investment’s returns relative to the overall market. It provides insights into how much the price of a particular asset is expected to change in relation to market movements. A beta greater than 1 implies that the asset is more volatile than the market, while a beta less than 1 indicates it is less volatile. Therefore, assessing performance with beta helps investors understand the risk involved and how the investment behaves in different market conditions.

Other methods, while important in their own contexts, do not provide a complete picture of investment performance. Absolute return focuses on the total return of an investment without comparing it to a benchmark, which can be limiting since it doesn’t account for the relative risk taken. Net interest margin measures the difference between interest income earned and interest paid, primarily used in banking and lending rather than in direct investment performance assessment. Age-weighted returns, which adjust returns based on the age of the investment, serve a specific purpose and context but are less standard than beta for general performance evaluation.