A bi-weekly challenge from Andre Mirabelli & Opturo

How does an attribution modeler address the following challenge?
If a Fund achieves 50% one year and 0% the next, and its Benchmark achieves 0% the first year and -50% the next, then the active return each year is 50%. Is the annualized active return 50%? Or is the annualized active return the annualized Fund return minus the annualized Benchmark return:{[(1+ 0.5)(1+ 0)]^(1/2) – 1} – {[(1+ 0)(1- 0.5)]^(1/2) – 1} = 51.7%?.

A bi-weekly challenge from Andre Mirabelli & Opturo

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