Net selectivity of the return distribution
Net selectivity is the remaining selectivity after deducting the amount of return require to justify not being fully diversified
NetSelectivity(Ra, Rb, Rf = 0, ...)
Ra |
an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns |
Rb |
return vector of the benchmark asset |
Rf |
risk free rate, in same period as your returns |
... |
any other passthru parameters |
If net selectivity is negative the portfolio manager has not justified the loss of diversification
Net selectivity = Selectity - diversification
where α is the selectivity and d is the diversification
Matthieu Lestel
Carl Bacon, Practical portfolio performance measurement and attribution, second edition 2008 p.78
data(portfolio_bacon) print(NetSelectivity(portfolio_bacon[,1], portfolio_bacon[,2])) #expected -0.017 data(managers) print(NetSelectivity(managers['1996',1], managers['1996',8])) print(NetSelectivity(managers['1996',1:5], managers['1996',8]))
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