standard deviation in mutual fund This is a topic that many people are looking for. khurak.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, khurak.net would like to introduce to you Compare Mutual Funds Alpha, Beta, Standard Deviation & Sharpe Ratios Mutual funds for Beginners. Following along are instructions in the video below:
“To uni investment academy in our earlier videos. We have studied risk and return parameters parameters like standard deviation alpha beta. And sharpe ratio to understand how to read performance. Various funds and in this video.
We want to see how these parameters can be used to compare two funds before we actually compare funds let s quickly go through what these four parameters mean standard. Deviation is the value by which the returns of fund may go up or down in correlation with its mean or average return. So a lower standard deviation is better as it means. That the fund is less volatile and would give returns around its mean a beta value indicates.
How closely is the fund related to the index it follows the beta value often index is always considered to be one. So if a fund has a lower beta value it means that this fund will gain less than the market s move high and will fall less when the markets move down in comparison with the index similarly. If a fund has a beta value higher than one it means that this particular fund will make more gains when the markets rise and will fall more when the markets move down you can multiply the beta value of a fund with the percentage gains made by an index. Which the fund correlates to and easily predict the returns of that particular fund an alpha value of a fund indicates.
The amount of returns generated by the fund over and above the ones predicted by its beta value. So..
Let s say a particular index has gained. 10 a fund that it correlates to has a beta value of 11. So as for the predictions this particular fund should make 11 returns. But let s say the fun has actually made 14 returns.
So this particular fund has generated an alpha of 3. So higher the alpha. The better. It is but has to be consistent in a fund again a beta value higher than one is desirable because it indicates that this particular fund would make better returns than the index the higher the sharpe ratio the better.
It is because when you compare two funds of fund with a higher sharpe ratio indicates that that particular fund is generating more returns for the amount of risk. It is taking please do remember that none of these parameters should be read into isolation. But should be read together to analyze risk and return associated with the front. Now let us move ahead to the example.
Whenever you compare two funds. They should fall into the same fund category as the risk and return of each category is different..
The fund should also relate to the same benchmark. Then the comparison becomes fair in this example. We are taking two funds. Which belong to the equity mid cap category.
And the benchmark is nifty freefloat mid cap. Hundred. The funds are gorillas and life bedcap fun and hdfc mid cap. Opportunities fun.
A fund should also be compared with its benchmark on all the risk return parameters to understand whether the fund is actually doing well or no p e ratio. For fun indicates whether the fund has some growth potential or no as you can see the p e ratio of both these funds is far below than the benchmark which indicates that these funds have growth potential at the same time they are less riskier than the benchmark now the p e ratio. Is almost same so let s move on to the next parameter 3 your trailing returns of both these funds around 30. And the difference is less than 1.
So they almost equal standard deviation is the amount by which the return may go up or down in correlation with its mean. So a lower standard deviation is what is desirable and as you can see the less analyzed mid cap fund has a higher standard deviation as compared to hdfc met gap..
Opportunities fun. And so. The hdfc fund scores. Here the beta value of a fund tells you the correlation of the fund with its benchmark index the analyze mid cap fund has a beta value of 11.
Which indicates that this one would gain more when the index benchmark rises and would fall more when the index falls whereas the beta value of hdfc mid cap opportunities fund is less than 1 indicating. It is less sensitive than the index now we have seed a higher beta values. What is desirable. But let s evaluate all the parameters together let s move on to the next parameter that is alpha not alpha value indicates.
The amount of returns generated by the fund over and above the ones predicted by its beta value as you can see the alpha value of hdfc mid cap. Opportunities fund is greater than birla s and life s net cash fund. But the beta value of the hdfc mid cap. Opportunities fund was itself lower predicting lower returns.
And so the alpha value here is higher and so. In this comparison alpha value should not influence our decision too much moving on to sharpe ratio sharpe ratio tells you the amount of returns generated per unit of risk taken so a higher sharpe ratio is what is desirable and so hdfc mid cap..
Opportunities fund scores. Here looking at all these parameters. Together imply that hdfc mid cap. Opportunities fund is able to produce same amount of returns for lower risk taken.
Now. The lower is taken is also evident from the beta value. Which indicates that this particular fund will fall less when the markets fall and so based on all these current values hdfc mid cap. Opportunities fund.
Seems to be a better choice. Since hope. The video was able to explain how to look at risk return parameters in unison and then choose your fun thanks for watching this video watch this space for more such topics until then happy investing if you have any questions let us know in the section below our videos and if you like ” ..
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