How We Grade Portfolios
The Portfolio Health Score, factor by factor - every threshold, no black box
The score in one paragraph
The Portfolio Health Score is a 0 to 100 grade built from five factors: risk-adjusted returns (25 points), diversification (20), downside protection (20), risk-adjusted performance (20) and consistency (15). It is computed from your portfolio's monthly return history over the analysis window you select, benchmarked against the S&P 500 (SPY). Every anchor is listed below; the same numbers drive the “Why?” popovers on your report. Each table row is an anchor: values between two rows earn points scaled linearly between them, so fractional scores like 17.3/20 are normal. If a factor cannot be computed from your history, it is excluded, labeled “insufficient data” on your report, and the total is renormalized over the remaining factors. It is never quietly given a default score.
Risk-Adjusted Returns
25 points maxMeasured by: Sharpe ratio (higher is better)
| Sharpe ratio | Points | Verdict |
|---|---|---|
| at 2 or higher | 25/25 | Exceptional |
| at 1.5 | 20/25 | Very good |
| at 1 | 15/25 | Good |
| at 0.5 | 10/25 | Fair |
| at -0.5 or lower | 0/25 | Poor |
Diversification
20 points maxMeasured by: Average pairwise correlation of your funds (lower is better)
| Average pairwise correlation of your funds | Points | Verdict |
|---|---|---|
| at 0.3 or lower | 20/20 | Well diversified |
| at 0.5 | 15/20 | Reasonably diversified |
| at 0.7 | 10/20 | Correlated |
| at 1 or higher | 2/20 | Highly correlated |
When look-through data is available, this factor is graded on the securities your funds actually hold (effective holdings count and largest single-security weight) instead of this correlation table. The correlation fallback applies only when look-through data is unavailable.
Downside Protection
20 points maxMeasured by: Down-market capture vs S&P 500 (lower is better)
| Down-market capture vs S&P 500 | Points | Verdict |
|---|---|---|
| at 80% or lower | 20/20 | Strong protection |
| at 90% | 15/20 | Decent protection |
| at 100% | 10/20 | Tracks the market down |
| at 130% or higher | 0/20 | Falls harder than the market |
Risk-Adjusted Performance
20 points maxMeasured by: CAPM alpha (return above your risk-free plus beta-implied expectation) (higher is better)
| CAPM alpha (return above your risk-free plus beta-implied expectation) | Points | Verdict |
|---|---|---|
| at 3% or higher | 20/20 | Excellent |
| at 0% | 15/20 | Beating expectations |
| at -2% | 10/20 | Near expectations |
| at -5% | 5/20 | Below expectations |
| at -8% or lower | 0/20 | Well below expectations |
Alpha = your return minus [risk-free rate + beta x (SPY return - risk-free rate)]. The risk-free term matters: without it, low-beta portfolios would be handed free alpha.
Consistency
15 points maxMeasured by: Share of positive months (win rate) (higher is better)
| Share of positive months (win rate) | Points | Verdict |
|---|---|---|
| at 70% or higher | 15/15 | Very consistent |
| at 60% | 12/15 | Consistent |
| at 50% | 8/15 | Mixed |
| at 35% or lower | 0/15 | Inconsistent |
Known limitations
- Short histories (under 12 months of data) make every factor less reliable.
- When look-through data is unavailable, diversification falls back to the correlation of the funds you entered, which understates how diversified a single broad-market fund really is.
- All factors are benchmarked against the S&P 500 (SPY), which is a rough yardstick for bond-heavy or international portfolios.