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5️⃣ Alpha is a measure of an investment's performance relative to a benchmark or market index. It represents the excess return generated by an asset or portfolio after adjusting for risk. A positive alpha indicates the investment outperformed the market, while a negative alpha suggests underperformance.
formula
Alpha= Actual Return−(Risk-Free Rate+Beta×(Market Return−Risk-Free Rate
In simple terms, alpha shows how much an investment has added (or detracted) from expected returns, considering its risk level (beta)
4️⃣ Sortino ratio is a variation of the Sharpe ratio that focuses only on the downside risk, rather than the total volatility. It measures the risk-adjusted return of an investment, but instead of considering all price fluctuations (both upward and downward), it only accounts for negative returns (downside risk)
formula
Sortino Ratio= Return of the Asset−Risk-Free Rate/ Downside Deviation
Where downside deviation is the standard deviation of negative returns.
A higher Sortino ratio indicates better risk-adjusted performance, specifically in terms of downside risk. It is preferred by investors who are more concerned with limiting losses rather than overall volatility
(NOT IMPORTANT)
3️⃣ Beta is a measure of an asset's volatility or systematic risk in relation to the overall market. It indicates how much an asset's price moves in relation to market movements. A beta of:
1 means the asset's price moves in line with the market.
- Greater than 1.0 means the asset is more volatile than the market.
- Less than 1.0 means the asset is less volatile than the market.
- Negative beta suggests the asset moves in the opposite direction of the market.
Beta is often used to assess an asset's risk relative to a benchmark, like a stock index.
(NOT IMPORTANT)
2️⃣ Sharpe ratio is a measure of risk-adjusted return, used to evaluate the performance of an investment. It compares the return of an asset or portfolio to its volatility (risk). A higher Sharpe ratio indicates better risk-adjusted returns. It is calculated as:
Sharpe Ratio = Return of the Asset
− Risk-Free Rate/
Standard Deviation of the Asset's Return
Where the risk-free rate represents the return of a risk-free investment, like a government bond
(IMPORTANT)
2️⃣ Sharpe ratio is a measure of risk-adjusted return, used to evaluate the performance of an investment. It compares the return of an asset or portfolio to its volatility (risk). A higher Sharpe ratio indicates better risk-adjusted returns. It is calculated as:
Sharpe Ratio = Return of the Asset
− Risk-Free Rate/
Standard Deviation of the Asset's Return
Where the risk-free rate represents the return of a risk-free investment, like a government bond
1️⃣ Standard deviation measures the volatility of a mutual fund’s returns. A higher standard deviation means more price fluctuations (higher risk), while a lower standard deviation indicates more stable returns. It helps investors assess a fund’s risk level.
Example:- Standard deviation measures a mutual fund’s return volatility
- Low (e.g., 2%) → Stable returns, lower risk (e.g., bond funds).
- Medium (e.g., 6%) → Moderate risk (e.g., balanced funds).
- High (e.g., 15%) → High volatility, higher risk (e.g., growth equity funds)
Higher standard deviation means more fluctuations in returns
(NOT IMPORTANT)
1️⃣ Standard deviation measures the volatility of a mutual fund’s returns. A higher standard deviation means more price fluctuations (higher risk), while a lower standard deviation indicates more stable returns. It helps investors assess a fund’s risk level.
Example:- Standard deviation measures a mutual fund’s return volatility
- Low (e.g., 2%) → Stable returns, lower risk (e.g., bond funds).
- Medium (e.g., 6%) → Moderate risk (e.g., balanced funds).
- High (e.g., 15%) → High volatility, higher risk (e.g., growth equity funds)
Higher standard deviation means more fluctuations in returns
