What does Alpha beta and Sharpe ratio mean?

Alpha and beta are two of the key measurements used to evaluate the performance of a stock, a fund, or an investment portfolio. Alpha and beta are standard calculations that are used to evaluate an investment portfolio’s returns, along with standard deviation, R-squared, and the Sharpe ratio.

What does the Sharpe ratio tell you?

Definition: Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. If two funds offer similar returns, the one with higher standard deviation will have a lower Sharpe ratio.

How is beta related to Sharpe ratio?

Beta is a statistical tool, which gives you an idea of how a fund will move in relation to the market. Risk in this case is taken to be the fund’s standard deviation. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk.

What is Alpha beta standard deviation in mutual fund?

Alpha represents an asset manager’s performance in guiding a fund into yielding profits in comparison to the benchmark index. Beta, on the other hand, registers and quantifies a fund’s response to market volatility, i.e. the degree of conformity of a fund’s prices in response to any change in the benchmark index.

What do alpha and beta mean in investing?

Beta is a measure of volatility relative to a benchmark, such as the S&P 500. Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations.

Do you want a high or low Sharpe ratio?

Usually, any Sharpe ratio greater than 1.0 is considered acceptable to good by investors. A ratio higher than 2.0 is rated as very good. A ratio of 3.0 or higher is considered excellent. A ratio under 1.0 is considered sub-optimal.

What is alpha ratio in mutual fund?

Alpha is the excess returns relative to market benchmark for a given amount of risk taken by the scheme. Alpha in mutual funds is probably the most important performance measures of a mutual fund scheme.

What are alpha and beta in investing?

How do you find the standard deviation of a Sharpe ratio?

Sharpe Ratio = (Rx – Rf) / StdDev Rx StdDev Rx = Standard deviation of portfolio return / volatility.

What is a good Sharpe ratio for a mutual fund?

What is Sharpe ratio in mutual funds?

Developed by Nobel laureate economist William Sharpe, the Sharpe ratio measures risk-adjusted performance. It is calculated by subtracting the risk-free rate of return (U.S. Treasury Bond) from the rate of return for an investment and dividing the result by the investment’s standard deviation of its return.