What is a benchmark in finance?
Financial benchmarking involves running financial analysis to compare business practices and standards of one firm to those of other firms within the same industry.
A benchmark is a standard, or baseline, used for comparison purposes when assessing a portfolio or mutual fund.
What is the benchmark in the portfolio?
Benchmarks are used to analyze and manage the allocation, risk and given returns of a portfolio. They can also be used to assess how a portfolio is performing against different market sectors. To track the performance of an asset group, companies use an index such as the S&P 500, which is broad and captures the entire market, or a more specific index that tracks a specific industry.
What are the Types of Financial Benchmarking?
There are two different types of financial benchmarking – internal and external. Internal benchmarking compares the performance of different stocks within the same portfolio, while external benchmarking compares the overall portfolio performance to other portfolios that are either in the same industry or in different industries.