| Term |
Definition |
| Risk |
The calculation of risk follows that of standard deviation. For analysis period that is less than a year daily price/return data is used and for a year and above, weekly price/return data is used. The analysis period for risk will start from weekly onwards. |
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| Reward-to-Variability Ratio (RVAR) |
Reward-to-Variability Ratio (RVAR) as the name implies is a measurement of the fund's average return (less risk-free rate, in this case it is set as default 1% per annum) over a specific analysis period divided by the fund's risk (also known as variability).
The numerator of RVAR measures a fund's excess return, that is the return for bearing risk or commonly referred to as risk premium and the denominator is the standard deviation.
RVAR shows the excess return per unit of total risk. The higher the ratio, the better the fund performance is as compared to its peers.
Weekly price/return data is used for the calculation of RVAR. The analysis period for RVAR will start from 3 months onwards.
Background: William F. Sharpe, winner of the 1990 Nobel Prize in Economics, is a Professor of Finance, Emeritus at Stanford University's Graduate School of Business. In addition, he is also a trustee of the AXA Rosenberg Mutual funds and serves as Chairman of the Board of Financial Engines, Incorporated. Years back, Dr Sharpe introduced RVAR as a measurement for the performance of mutual funds (unit trust) which is also commonly known as Sharpe Ratio, Sharpe Index or Sharpe Measure.
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| Ranking Grade |
The funds are ranked based on their returns/risk/reward-to-variability. The numbers (after each grade) are the position of the funds within the scope.
| Quartile |
Grade |
Remark |
|
1st Q
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A
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Excellent |
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2nd Q
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B
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Good |
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3rd Q
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C
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Average |
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4th Q
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D
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Below Average |
Example: There are 12 funds in a chosen scope, the ranks are as follow:
| 1st Q: |
A1, |
A2 |
& |
A3 |
| 2st Q: |
B4, |
B5 |
& |
B6 |
| 3st Q: |
C7, |
C8 |
& |
C9 |
| 4st Q: |
D10, |
D11 |
& |
D12 |
If a fund is ranked B5, it means that within the 12 funds, it is in the 5th position under Grade B category.
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| Risk-Adjusted Performance |
The risk-adjusted performance ratio examines the percentage of return per unit of risk (read section on volatility) taken. The formula for calculating this statistic is as follow:
Why you should care?
The risk adjusted performance ratio characterizes how well the return of a fund compensates an investor for each unit of risk undertaken. Funds with higher return/volatility ratio give greater return for every unit of risk. Investing in funds with high return/volatility ratio maximizes the invested capital. Investors can use this derived ratio to rank and compare the performance of fund managers investing in the same regions of sectors.
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| Volatility |
The volatility statistic examines the risks borne by a particular fund’s portfolio holdings and it is measured by the standard deviation of total returns over time. The formula for calculating standard deviation is as follow:
N: no. of observations within the time period
x: Daily fund return
x (bar): Average daily fund return within the time period.
Why you should care?
Examining the volatility ratio is a way investors can gauge how risky a particular fund is. A higher volatility ratio suggests higher risk entailed in the fund. Such funds tend to decline sharply in the event of any adverse economic developments. As such, it might not be suitable for investors with a low tolerance for fluctuations.
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| Recommended Sector |
Please click here for the methodology |
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| Recommended Portfolio |
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| PSPL Risk Classification |
Please click here for details |
