M squared (M²) is a risk-adjusted performance measure that evaluates the performance of an investment portfolio. The idea behind this ratio is to create a synthetic portfolio that mimics the risk of the market portfolio.
You can do that by altering the weights of the actual product mix and the risk-free asset until the synthetic portfolio has the same total risk as the market portfolio. Since mimicking a portfolio carries the same risks as the market portfolio, you can use its return as a direct point of comparison to the market return.
This open-access Excel template is a useful tool for statisticians, financial analysts, data analysts, portfolio managers, and anyone working with spreadsheet software.
M Squared Ratio is among the topics included in the Portfolio Management module of the CFA Level 1 Curriculum. Gain valuable insights into the subject with our Portfolio Management course.
You can also explore other related templates such as—Sharpe Ratio, Treynor Ratio, and Jensen’s Alpha.