Beyond Absolute Returns: Measuring Risk-Adjusted Skill
Two mutual funds delivering identical 15% annual returns are not equally impressive if one took wild speculative risks while the other engineered steady compounding. To benchmark true managerial quality, sophisticated investors examine four foundational statistical ratios.
1. Alpha (α) & Beta (β)
Alpha gauges excess return generated over the CAPM benchmark expectation, while Beta indicates volatility sensitivity relative to market fluctuations.
2. Sharpe Ratio vs. Sortino Ratio
- Sharpe Ratio: Measures excess return per unit of total risk (standard deviation).
- Sortino Ratio: Focuses strictly on downside deviation, providing a more accurate assessment of capital preservation.
3. Quantitative Screening on MyPlexus
MyPlexus automatically computes rolling Sharpe, Sortino, Treynor, and Jensen's Alpha across all mutual funds in India, ranking schemes against peer medians.
