What is the formula used to calculate style return?

The formula for calculating style return is derived from the idea of distinguishing the return attributable to a particular investment style from the overall market and benchmarking performance. The correct choice indicates that style is determined by the difference between the benchmark return and the market return.

In the context of this question, the benchmark return represents the return of a specific asset class or strategy that an investor expects to achieve based on a given investment style. The market return is the broader return of the overall market. By subtracting the market return from the benchmark return, investors can analyze the specific contribution of the style to the portfolio's performance. This relationship is crucial as it allows investors to assess whether their investment strategy is aligned with their objectives, independent of the general market movements.

Understanding this formulation is essential for portfolio management, as it helps to isolate the impact of style preferences, such as growth versus value investing, on overall portfolio performance. This analysis can influence decisions on asset allocation and strategic investment adjustments to better align with future investment goals.