The return and risk performance of an index are often key concerns for investors.

In terms of return performance, common metrics include cumulative return over a period and annualized return. The cumulative return measures the percentage change in the index's level over a given time frame, while the annualized return converts the periodic return into an average yearly figure. However, this is only a theoretical value and does not reflect actual yearly returns.

When analyzing an index's return performance, it's important to note that the observed price change over a period may not represent the total return from investing in the index. This involves the concepts of price return index and total return index. Typically, the indices displayed directly in trading software or market data terminals are price return indices, which only reflect changes in stock prices. When a company distributes cash dividends, its stock price adjusts downward (ex-dividend), causing the price return index to decline accordingly. Since dividends are also part of investment returns, the index's performance should not be judged solely by the price return index but also by the total return index, which incorporates the reinvestment of cash dividends from index constituents.

For risk assessment, volatility and maximum drawdown are key metrics. Volatility is essentially the standard deviation of returns—the higher the value, the more unstable the index's returns and the greater the risk. Maximum drawdown reflects the worst possible loss over a period, calculated as the largest peak-to-trough decline at any point in time. In simple terms, it shows how much could be lost if the worst-case scenario occurs.

Just as consumers seek good value for money, investors aim for a favorable risk-return trade-off. After understanding an index's return and risk profile, metrics like the Sharpe ratio can be used to evaluate its "investment efficiency." The Sharpe ratio measures the excess return per unit of total risk—the higher the ratio, the better the risk-adjusted performance. For example, the ChiNext Index surged 355.5% from 2012 to 2021. Despite its high annualized volatility of 31%, its Sharpe ratio reached 0.46, outperforming many major broad-based indices.