EX-POST Risk Measures:
– Related to historical returns and are considered ‘Backward looking’
– e.g.: Sharpe Ratio, Jenson Alpha, Risk Attribution, etc.
– Input returns required is best when taken from existing ‘mature’ Performance systems
EX-ANTE Risk Measures:
– These measures are used to effectively manage the ‘future’ risk of the portfolio using the risk/return guidelines per Investment policy statement
– They are called ‘Forward Looking’ measures
– e.g: VaR/CVaR, Variance/Covariance Analysis, Scenario Analysis, Stress-testing, What-If Analysis, Back-testing for model validation, etc.
– Relates to calculating various performance measures and is also ‘Backward looking’
– e.g: IRR, TWR, Return Attribution, Returns Analysis, etc.
A complete view of the portfolio’s current risk/return along with a good understanding of future risks using the above dataset – all together in real-time is a must in today’s competitive investment landscape.