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Performance attribution is the process of analyzing the returns of an investment portfolio and identifying the specific factors that contributed to those returns. The goal of attribution is to understand how different investment decisions and market conditions ha ve affected the portfolio's performance.

There are several categories of attribution that are commonly used, including:

• Security selection: the returns generated by specific securities within the portfolio

• Market timing: the returns generated by the portfolio manager's decisions to move in or out of a particular market or asset class

• Sector allocation: the returns generated by the portfolio manager's decisions to allocate assets to particular sectors or industries

Industry standards for performance attribution include the use of a benchmark, such as a market index, to compare the portfolio's returns to. Additionally, many investment firms use proprietary attribution models that are tailored to their specific investment strategies and portfolio holdings.

Attributing gains and losses to specific factors is important because it can help identify areas of success and areas where the portfolio may be underperforming. This information can then be used to make informed decisions about whether to modify the portfolio, such as by adjusting the allocation to certain securities or sectors. Additionally, it can help the portfolio manager to understand the underlying drivers of performance, and to better communicate the portfolio's results to clients and stakeholders.