Benchmark
How do you tell whether a market's gain was actually good, once you compare it with something else?
In plain words
A benchmark is a yardstick you measure a result against, usually a broad index, a market average, or another asset. It converts an absolute return into relative performance, showing whether the gain came from your asset or from a general rise in the market.
Why it matters
A portfolio can rise while underperforming, or fall while outperforming, depending on the yardstick chosen. Picking a benchmark that moves with the asset and shares its risk profile makes the comparison meaningful; picking one that does not credits or blames the wrong thing.
In a real week: ETH, week of 28 June 2021
In the week of 28 June 2021, ETH rose 17.17% and beat BTC, its benchmark, by 15.49 percentage points. The two moved in the same direction, with a close correlation of 0.88, and ETH was the larger weekly move of the pair.
A common mistake
Treating the benchmark as a fixed truth. It is a chosen reference; a different yardstick, such as a wider index or a different asset, can reverse the verdict.