What is Sharpe Ratio, Portfolio Turnover Ratio, Beta (ß), Tracking Error, Standard Deviation, Total Expense Ratio in Investments

share price on the screen
Share price (Image: Meel Bijendra/Agrika)

What is Sharpe Ratio

Sharpe ratio is a risk-to-reward ratio, it measures the excess portfolio return generated by investing in risk-free assets per unit of total risk. Whereas, as a positive Sharpe ratio indicates, the portfolio compensates investors with excess returns (above the risk-free rate) for the proportional risk taken; A Negative Sharpe ratio indicates, it is better for investors to invest in risk-free assets.

What is Portfolio Turnover Ratio

Portfolio Turnover Ratio is the percentage of a fund’s holdings that have changed in a given year. This ratio measures the fund’s trading activity, calculated by subtracting purchases or sales and dividing by average monthly net assets.

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What is Beta (ß)

The Beta (ß) of a portfolio is a number that reflects the relationship between the portfolio returns with a market index i.e. it measures the volatility, or systematic risk, of the portfolio compared to the market as a whole.

What is Tracking Error

Tracking error measures how closely the portfolio returns are tracking the benchmark index returns. It measures the deviation between portfolio returns and benchmark index returns. A low tracking error indicates the portfolio closely tracking the benchmark index and a high tracking error indicates portfolio returns have a high deviation from the benchmark index returns.

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What is Standard deviation

A statistical measure that defines the expected volatility/risk associated with a portfolio. It explains the variation/deviation from the average returns given by the portfolio. Higher standard deviation means higher volatility (risk) and lower standard deviation means lower volatility.

What is Total Expense Ratio

Total expenses charged to the scheme for the month expressed as a percentage to average monthly net assets.

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