Published 2026-10-14
Benchmark
A benchmark is the reference a strategy is measured against. Without one, a return number says nothing — because the market itself may have delivered it.
What it is
A benchmark is the reference a strategy is measured against — an index, a peer group, or a passive alternative.
Why a return without one is meaningless
If a strategy returned 15% while the market returned 20%, it did not add value — it did worse than doing nothing.
The same 15% is a success in a flat market and a failure in a bull market. The number is identical; the meaning is entirely in the comparison.
How to check
Ask two things: what is the benchmark, and does it match the strategy’s universe?
A strategy trading small caps compared against a large-cap index is being measured against the wrong thing — and the mismatch usually flatters the result.