Sector Performance Attribution Requires Sector Returns

Summary

The document asks whether monthly index returns and risk measures, such as the Sharpe ratio, can be attributed to sector weights when the weights are known over time. Its central answer is that sector weights alone are insufficient: sector returns are also needed to determine how each sector contributed to index performance.

This is a concise limitation rather than a worked attribution method. It does not provide formulas, an example calculation, or a procedure for decomposing risk measures, so it offers only a starting point for an analysis. In practice, the answer signals that an analyst must pair portfolio weights with sector return data before attempting performance attribution; the document does not explain how to handle interaction effects, changing weights within a month, or risk attribution.

Key ideas

• Sector weights alone do not determine how sectors contributed to index returns.
• Sector return data is needed alongside weights to perform sector performance attribution.
• The discussion does not provide a method for decomposing risk measures such as the Sharpe ratio.

Tags

# Performance attribution of indices to their sector weights


# Performance attribution of indices to their sector weights












Is it possible to attribute performance of indices (monthly returns and risk measures - Sharpe ratio, etc.) to their sector weights (if I know them)?

Example: I know the monthly performance of various indices and I know the proportions they invest in each sector each month (e.g. health care 10%, utilities 5%, etc. in January - same for other months). Is it possible to find how the particular sectors attribute to the performance of indices from these inputs?

## Answer by BG25 (score 1)

https://quant.stackexchange.com/a/53192

You can attribute all of those to sectors, but unfortunately only if you know the sector returns

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.