What common assessment do ex-post alpha and Treynor measure provide?

Ex-post alpha and Treynor measure are both tools used to assess investment performance, particularly with a focus on the skill of the investment manager.

Ex-post alpha represents the return of a portfolio relative to the expected return based on its risk exposure as measured by the Capital Asset Pricing Model (CAPM). A positive alpha indicates that the asset or portfolio has outperformed its expected return, suggesting that the manager has added value through skillful investment decisions.

The Treynor measure, on the other hand, assesses performance based on systematic risk, or market risk, rather than total risk. It calculates the excess return generated per unit of market risk (beta). A higher Treynor ratio implies greater investment skill in generating returns commensurate with the level of risk taken.

By evaluating the returns generated in relation to both expected return (via alpha) and the market risk incurred (via the Treynor measure), both metrics serve as valuable indicators of the investment skill exhibited by a fund manager. High values of these measures relative to their benchmarks signal strong investment performance resulting from effective decision-making rather than from taking on excessive risk.

While the other options focus on different aspects of investment analysis, such as forecasting future returns or analyzing sector performance, the core focus