*Rev. Date August 29, 2023*

This document contains the definitions for most metrics displayed on Venn.

**Historical Performance Metrics**

**Annualized Return**

Annualized total return is the geometric average return earned by an investment or portfolio each year over a given time period.

**Annualized Volatility**

Volatility is a statistical measure of the dispersion of returns.

**Sharpe Ratio**

The Sharpe Ratio is a measure of risk-adjusted return; it is the average arithmetic return earned in *excess* of the risk-free rate per unit of volatility or total risk.

Reference:

Sharpe, William F. "The Sharpe Ratio." *The Journal of Portfolio Management* 21.1 (1994): 49-58.

**Max Drawdown**

Max drawdown is the largest single drop in your investment or portfolio calculated from peak to trough in value over the specified time period.

**Forecast Performance Metrics**

**Forecast Return**

Forecast return displays the investment’s or portfolio’s expected annualized performance, given its factor exposures and your organization’s long-term factor return forecasts. Forecast factor returns are computed net of cash, so forecast cash return is also added to arrive at the investment’s or portfolio’s total forecast returns.

The default factor forecast returns are the realized factor returns since the inception of the Two Sigma Factor Lens and the default cash forecast is the realized cash return in the most recent month, annualized. The default factor betas and forecast residual returns are computed using a trailing 3 year window.

For single investments:

For portfolios:

Forecast returns of portfolios are weighted sums of the constituent investments’ forecast returns, computed the same way as the single investment forecast returns.

**Forecast Volatility**

Forecast volatility displays the investment’s or portfolio’s expected annualized volatility, given its factor exposures and the long-term, historical factor covariance matrix.

**Forecast Sharpe Ratio**

Forecast Sharpe Ratio displays the expected risk-adjusted return, given the investment’s or portfolio’s recent factor exposures, your organization’s long-term factor return forecasts, and the long-term historical factor covariance matrix. The default factor return forecasts are the realized factor returns since the inception of the Two Sigma Factor Lens.

**Historical Investment-Level Attribution**

**Contribution to Return**

The contribution to return displays the investment’s contribution to the portfolio’s overall return.

**Contribution to Volatility**

The contribution to volatility displays the investment’s contribution to the portfolio’s overall volatility.

**Contribution to Sharpe Ratio**

The contribution to Sharpe Ratio displays the investment’s contribution to the portfolio’s overall Sharpe Ratio.

**Contribution to Max Drawdown**

The contribution to Max Drawdown displays the investment’s contribution to the portfolio’s overall Max Drawdown.

**Relative Performance Metrics**

**Excess Return**

Excess return is the annualized return of the portfolio minus the annualized return of the specified benchmark.

Cumulative excess return is the cumulative return of the portfolio minus the cumulative return of the benchmark.

**Tracking Error**

The tracking error, or the amount of risk that the investment or portfolio takes relative to its benchmark, is calculated as follows:

Reference Goodwin, Thomas H. "The information ratio." *Financial Analysts Journal* (1998): 34-43.

**Information Ratio**

The information ratio is calculated as the active return of the portfolio divided by the tracking error:

The I.R. field is null if no benchmark is provided.

**Max Underperformance**

Max underperformance is the max drawdown of the portfolio's excess return compared to the benchmark.

*This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.*