Perfometer and the Performance Watcher Weather

The Perfometer is Performance Watcher’s signature visual indicator that summarizes the quality of investment performance in a simple, intuitive way. It translates complex risk-return analytics into easily understood weather metaphors, allowing managers and clients to quickly grasp portfolio health.

Purpose

• To provide a fast, visual assessment of a portfolio’s relative performance quality.

• To benchmark returns and risk against the PW Index or a chosen composite.

• To communicate performance clearly to clients without technical jargon.

Weather Metaphors

• Radiant: Major outperformance while risk is in check

• Sunny: Significant outperformance with risk well-managed

• Sunny Spells: Slight outperformance or well-balanced performance

• Cloudy: Underperformance with manageable risk deviation

• Overcast: Significant underperformance (example shown in the image)

• Stormy: Major underperformance combined with excessive risk

How the Perfometer is Constructed

1. Inputs:

   • Portfolio return

   • Portfolio volatility (risk)

   • Benchmark return

   • Benchmark volatility

2. Relative Return: Difference between portfolio return and benchmark return.

3. Relative Volatility: Difference between portfolio volatility and benchmark volatility.

4. Risk-Adjusted Quality:

   • The Weather lines show how an instrument's risk and return compare to its reference index.
     Their shape adapts to the market regime:

     • In positive markets, instruments taking too little risk are slightly penalised (opportunity cost), while those taking too much risk are penalised exponentially. Around the index, Weather improves with better risk-adjusted returns.

       

     • In negative markets, instruments that preserve capital (lower risk and smaller losses) are rewarded, while excessive risk is again penalised. Around the index, Weather still favours better risk-adjusted returns, but gives more weight to capital protection.

     

     In short, the Weather adjusts dynamically to market conditions—rewarding efficient risk-taking in up markets and prudent capital protection in down markets.

5. Scoring & Mapping:

   • A proprietary algorithm assigns a weather state based on relative return and volatility.

   • This is displayed as a Perfometer gauge plus a weather icon (clouds, sun, storm).

Where It’s Used

• Dashboards: Provides quick comparative views across multiple portfolios.

• Analyses: Offers detailed explanations of under/overperformance (with risk-adjusted metrics).

• Reports: Included in PDF exports for client presentations.

Benefits

• Immediate Understanding: Converts technical statistics into visuals.

• Fair Comparison: Normalizes performance by risk profile and peer behavior.

• Actionable Insight: Highlights when risk-taking is not compensated by returns.

• Consistency: Standardized scoring across all instruments for objective benchmarking.