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80.'' There is need to change their perpective on the subject and understand the risk and return profiles very clearly.'' In this context , explain the tools used to arrive at the risk-adjusted return score.
Ans: The tools used for arriving at the risk-adjusted return score are:
- Standard Deviation: Reflects the returns fluctuations againsts its own mean - value to give a fair idea about the Fund's volatility.
- Beta Measure: Reflects the systematic risk (related to the benchmark) assigned to each of the Funds.
- Sharpe Ratio : Reflects the excess return over the risk -free return per unit of its volatility.
- Treynor Ratio: Reflects the excess return over the risk -free returns per unit of the systematic risk the Fund is exposed to.
- Jensen's Alpha (Differential Return); Reflects the return that is expected for the Fund, given its risk exposure and compares that with the return actually realized over the period under study.