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| Measuring
Risk |
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| Beta Calculation |
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Beta is
the sensitivity of an investment's returns
as compared to a benchmark. This benchmark
is commonly the S&P 500, but Fund
Manager allows you to assign any investment
as the benchmark. See the Benchmark
Dialog. A benchmark must be assigned
before beta calculations can be made.
A beta value less than 1 indicates the
investment is less volatile than the
benchmark. A beta value equal to 1 means
the investment's volatility is the same
as the benchmark, and a beta greater
than 1 means the investment is more
volatile.
Calculation
Details:
When calculating the beta of an investment
the simple monthly returns over the
specified comparison period are calculated.
The simple monthly return is:
Return = (End_price + Dist_per_share
- Start_price) / Start_price
The returns for both the investment
and benchmark are calculated. If the
comparison period is 5 years, there
are 60 monthly returns for each the
investment and the benchmark. To calculate
the beta, these 60 data points are plotted
with the benchmark returns along the
X axis, and the investment returns along
the Y axis. The slope of a best-fit
line through these data points is the
Beta.
where 'n' is the number of data points
(60 in this example), and 'x' are the
benchmark returns, and 'y' are the investment
returns. When calculating returns your
current interpolation range preferences
are used. If sufficient pricing data
is not available the Beta will not be
reported.
The beta for a portfolio, asset type,
goal, or investment type is a weighted
average of the beta's from the investments
in that group. The weighting is based
on the ending value.
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| Sharpe Ratio |
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Sharpe
Ratio is a measure of the risk-adjusted
return of an investment. It is desirable
to have a high Sharpe Ratio, as this
indicates more return for a given
amount of risk.
Calculation Details:
When calculating the Sharpe Ratio
of an investment the simple monthly
returns over the specified comparison
period are calculated. The simple
monthly return is:
Return = (End_price + Dist_per_share
- Start_price) / Start_price
The returns for the investment over
the complete comparison period are
calculated. If the comparison period
is 5 years, there are 60 monthly returns
calculated. The Sharpe Ratio is calculated
using the formula:
where r represents the simple monthly
returns of the investment, and f represents
a monthly risk-free return. When calculating
returns your current interpolation range
preferences are used. If sufficient
pricing data is not available the Sharpe
Ratio will not be reported.
The Sharpe Ratio for a portfolio, asset
type, goal, or investment type is determined
by calculating returns from a weighted
average of the investments in that group.
The weighting is based on the ending
value.
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