{"id":78089,"date":"2026-10-28T16:33:59","date_gmt":"2026-10-28T11:03:59","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?post_type=markets&#038;p=78089"},"modified":"2026-10-28T16:34:54","modified_gmt":"2026-10-28T11:04:54","slug":"mutual-fund-beta-sd-and-sharpe-ratio","status":"publish","type":"markets","link":"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-beta-sd-and-sharpe-ratio\/","title":{"rendered":"Mutual Fund Beta SD and Sharpe Ratio"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"78089\" class=\"elementor elementor-78089\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-4be72f6 elementor-section-full_width tab_container elementor-section-height-default elementor-section-height-default\" data-id=\"4be72f6\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-d209c0c\" data-id=\"d209c0c\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-inner-section elementor-element elementor-element-896d102 elementor-section-full_width elementor-section-height-default elementor-section-height-default\" data-id=\"896d102\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-wide\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-50 elementor-inner-column elementor-element elementor-element-c9133f2 chapters_list\" data-id=\"c9133f2\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-aa101bd elementor-widget elementor-widget-shortcode\" data-id=\"aa101bd\" data-element_type=\"widget\" data-widget_type=\"shortcode.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-shortcode\">\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery(\"#post_chapters a[href*='\" + location.pathname + \"']\")\n\t\t\t\t.addClass(\"current\")\n\t\t\t\t.attr(\"aria-current\", \"page\");\n\t\t})\n\t<\/script>\n\t<div class=\"desktop_chapters\"><div id=\"post_chapters\"><div class=\"post_chapters-heading\">Chapters<\/div><ul><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/background-and-orientation\/\">Background and Orientation<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-math\/\">Personal Finance Math<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/money-today-vs-money-tommorrow\/\">Money Today vs Money Tommorrow<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/the-retirement-part-1\/\">The Retirement -Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/assumptions-in-retirement-planning\/\">Assumptions in Retirement Planning<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/understanding-stock-funds\/\">The Role of Mutual Funds in Modern Finance<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/concept-of-fund-and-nav\/\">Concept of Fund and NAV<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/understanding-the-performance-of-your-fund\/\">Mutual Fund Factsheet<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/the-equity-scheme\/\"> The Equity Scheme<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/equity-scheme-part-2\/\">Equity Scheme Part 2<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-1\/\">Debt Funds Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/monitoring-your-portfolio\/\">Debt Funds Part 2<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-3\/\">Debt Funds Part 3<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-4\/\">Debt Funds Part 4<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/investing-in-bonds\/\">Investing in Bonds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/index-funds\/\">Index Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/arbitrage-funds\/\">Arbitrage Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/measuring-mutual-fund-returns\/\">Measuring Mutual Fund Returns<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/rolling-returns\/\">Rolling Returns<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-expense-ratio\/\">Mutual Fund Expense Ratio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-benchmarking\/\">Mutual Fund Benchmarking<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-beta-sd-and-sharpe-ratio\/\">Mutual Fund Beta SD and Sharpe Ratio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/sortino-and-capture-ratios\/\">Sortino and Capture Ratios<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/how-to-analyse-equity-mutual-funds\/\">How to Analyse Equity Mutual Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/how-to-analyse-debt-mutual-fund\/\">How to Analyse Debt Mutual Fund<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-portfolio\/\">Mutual Fund Portfolio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/smart-beta-funds\/\">Smart Beta Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/asset-allocation\/\">Asset Allocation<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/exchange-traded-funds\/\">Exchange Traded Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/basics-of-macro-economics\/\">Basics of Macro Economics<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-part-1\/\">Personal Finance-Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-review-part-2\/\">Personal Finance Review Part 2 <\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/know-your-funds\/\">Know Your Funds<\/a><\/li><\/ul><\/div><\/div><div 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     <\/li>\n                    \n                                  <\/ul>\n            <\/div>\n            \n            <div class=\"eael-tabs-content\">\n\t\t        \n                    <div id=\"study-tab\" class=\"clearfix eael-tab-content-item active-default\" data-title-link=\"study-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='Beta-Understanding-Relative-Risk-in-Depth' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>22.1 <\/strong><strong><b>Beta \u2013 Understanding Relative Risk in Depth<\/b><\/strong><\/h2>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-77988 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA.png\" alt=\"BETA\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Beta is a statistical measure that captures how much a mutual fund\u2019s returns move relative to its benchmark index. It is derived from regression analysis, where the fund\u2019s returns are plotted against the benchmark\u2019s returns over time.<\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Beta = 1<\/b><\/strong>\u2192 On average, the fund moves in line with the benchmark.<\/li>\r\n<li><b><\/b><strong><b>Beta &lt; 1<\/b><\/strong>\u2192 The fund is less volatile than the benchmark.<\/li>\r\n<li><b><\/b><strong><b>Beta &gt; 1<\/b><\/strong>\u2192 The fund is more volatile than the benchmark.<\/li>\r\n<li><b><\/b><strong><b>Beta &lt; 0<\/b><\/strong>\u2192 Rare, but indicates the fund moves inversely to the benchmark.<\/li>\r\n<\/ul>\r\n<p><strong><b>Formula (Regression-based):<\/b><\/strong><\/p>\r\n<p>\u03b2 = Cov(R_fund, R_benchmark) \/ Var(R_benchmark)<\/p>\r\n<p>Where:<\/p>\r\n<ul>\r\n<li>Cov = covariance between fund and benchmark returns<\/li>\r\n<li>Var = variance of benchmark returns<\/li>\r\n<\/ul>\r\n<p><strong><b>Example:<\/b><\/strong>\u00a0Suppose the benchmark index falls by 10%.<\/p>\r\n<ul>\r\n<li>Fund A (Beta = 0.8) \u2192 Expected fall = 8%<\/li>\r\n<li>Fund B (Beta = 1.0) \u2192 Expected fall = 10%<\/li>\r\n<li>Fund C (Beta = 1.2) \u2192 Expected fall = 12%<\/li>\r\n<\/ul>\r\n<p><strong><b>Table: Beta Interpretation<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Beta Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Meaning<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Investor Profile<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>&lt; 1<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Defensive fund, lower volatility<\/p>\r\n<\/td>\r\n<td>\r\n<p>Conservative<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>= 1<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Neutral, tracks benchmark<\/p>\r\n<\/td>\r\n<td>\r\n<p>Balanced<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>&gt; 1<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Aggressive, higher volatility<\/p>\r\n<\/td>\r\n<td>\r\n<p>Risk-seeking<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>&lt; 0<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Inverse correlation<\/p>\r\n<\/td>\r\n<td>\r\n<p>Hedging strategy<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Key Insight:<\/b><\/strong>\u00a0Beta is relative risk, not absolute risk. It tells you how the fund compares to its benchmark, but not how risky it is in isolation. For absolute risk, we need standard deviation.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='Alpha\u2013Measuring-Skill-and-Excess-Return' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>22.2 <\/b><\/strong><strong><b>Alpha \u2013 Measuring Skill and Excess Return<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77989 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA.png\" alt=\"ALPHA\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Alpha is the measure of a fund manager\u2019s ability to generate returns above what is expected, given the fund\u2019s risk profile. It adjusts for both the risk-free rate and the fund\u2019s beta.<\/p>\r\n<p><strong><b>Formula:<\/b><\/strong><\/p>\r\n<p>\u03b1 = (R_fund \u2212 R_risk-free) \u2212 \u03b2 \u00d7 (R_benchmark \u2212 R_risk-free)<\/p>\r\n<p>Where:<\/p>\r\n<ul>\r\n<li>\u03b1= Fund return<\/li>\r\n<li>R_fund= Benchmark return<\/li>\r\n<li>R_risk-free= Risk-free return (e.g., treasury bills)<\/li>\r\n<li>\u03b2 = Fund\u2019s beta<\/li>\r\n<\/ul>\r\n<p><strong><b>Example 1 (Low Beta):<\/b><\/strong><\/p>\r\n<ul>\r\n<li>Fund return = 12%<\/li>\r\n<li>Benchmark return = 10%<\/li>\r\n<li>Risk-free return = 4%<\/li>\r\n<li>Beta = 0.8<\/li>\r\n<\/ul>\r\n<p>\u03b1 = (12 \u2212 4) \u2212 0.8 \u00d7 (10 \u2212 4) = 8 \u2212 4.8 = 3.2%<\/p>\r\n<p>Here, the fund is rewarded for generating higher returns with lower market risk (beta).<\/p>\r\n<p><strong><b>Example 2 (High Beta):<\/b><\/strong>\u00a0Same returns, but Beta = 1.3:<\/p>\r\n<p>\u03b1 = (12 \u2212 4) \u2212 1.3 \u00d7 (10 \u2212 4) = 8 \u2212 7.8 = 0.2%<\/p>\r\n<p>The fund\u2019s alpha shrinks because it took more market risk (a higher beta) to earn the same return.<\/p>\r\n<p><strong><b>Table: Alpha Interpretation<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Alpha Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Meaning<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Implication<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Positive<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Beat its risk\u2011adjusted expected return<\/p>\r\n<\/td>\r\n<td>\r\n<p>Good manager skill<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Zero<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Matched its risk\u2011adjusted expected return<\/p>\r\n<\/td>\r\n<td>\r\n<p>Neutral<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Negative<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Fell short of its risk\u2011adjusted expected return<\/p>\r\n<\/td>\r\n<td>\r\n<p>Poor manager skill<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Key Insight:<\/b><\/strong>\u00a0Alpha is a risk-adjusted measure of performance. It rewards funds that deliver returns with lower market risk (beta) and penalizes those that rely on a higher beta to generate returns.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Standard-Deviation-Measuring-Absolute-volatility' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2>22.3 <strong><b>Standard Deviation \u2013 Measuring Absolute Volatility<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77990 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation.png\" alt=\"Standard Deviation\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p dir=\"ltr\">Standard deviation (SD) is the most direct measure of risk. It shows how much a fund\u2019s returns deviate from its average return. A higher SD means greater volatility, which translates to higher risk.<\/p>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">\u03c3 = \u221a[ \u03a3(R\u1d62 \u2212 R\u0304)\u00b2 \/ (n \u2212 1) ]<\/p>\r\n<p dir=\"ltr\">Where:<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>R\u1d62<\/strong> = Individual return<\/li>\r\n<li><strong>R\u0304<\/strong> = Average return<\/li>\r\n<li><strong>n<\/strong> = Number of observations<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\">(If your original divides by n instead of n \u2212 1, that\u2019s the population version. Both are used, and n \u2212 1 is the usual choice for a sample of past returns.)<\/p>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<ul dir=\"ltr\">\r\n<li>Fund A: Average return = 12%, SD = 10%<\/li>\r\n<li>Fund B: Average return = 12%, SD = 20%<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\">Fund B is riskier because its returns fluctuate more widely.<\/p>\r\n<p dir=\"ltr\"><strong>Table: Standard Deviation Comparison<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Fund Type<\/th>\r\n<th scope=\"col\">Average Return<\/th>\r\n<th scope=\"col\">SD<\/th>\r\n<th scope=\"col\">Risk Profile<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Large-cap Fund<\/td>\r\n<td><span dir=\"ltr\">10%<\/span><\/td>\r\n<td><span dir=\"ltr\">12%<\/span><\/td>\r\n<td>Moderate<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Mid-cap Fund<\/td>\r\n<td><span dir=\"ltr\">12%<\/span><\/td>\r\n<td><span dir=\"ltr\">18%<\/span><\/td>\r\n<td>High<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Small-cap Fund<\/td>\r\n<td><span dir=\"ltr\">14%<\/span><\/td>\r\n<td><span dir=\"ltr\">25%<\/span><\/td>\r\n<td>Very High<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Investor Implication:<\/strong> If you invest \u20b91,00,000 in a fund with SD = 20% and an average return of 12%, then in roughly two out of three years your investment could end the year anywhere between about \u20b992,000 and \u20b91,32,000 (average \u00b1 one SD). In bad years, the fall can be larger.<\/p>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> SD captures absolute risk, unlike beta, which is relative. Investors who cannot tolerate volatility should prefer funds with lower SD.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash='Sharpe-Ratio-Risk-Adjusted-Performance' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>22.4. <\/strong><strong>Sharpe Ratio \u2013 Risk-Adjusted Performance<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77991 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio.png\" alt=\"Sharpe Ratio\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p dir=\"ltr\">The Sharpe Ratio, developed by Nobel laureate William Sharpe, combines risk and return into a single measure. It tells us how much excess return a fund generates for every unit of risk taken.<\/p>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">Sharpe Ratio = (R_fund \u2212 R_risk-free) \/ \u03c3_fund<\/p>\r\n<p dir=\"ltr\">Where:<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>R_fund<\/strong> = Fund return<\/li>\r\n<li><strong>R_risk-free<\/strong> = Risk-free return<\/li>\r\n<li><strong>\u03c3_fund<\/strong> = Standard deviation of the fund<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<p dir=\"ltr\">Fund A: Return = 14%, Risk-free = 6%, SD = 28%<\/p>\r\n<p dir=\"ltr\">Sharpe Ratio = (14 \u2212 6) \/ 28 = 8 \/ 28 = 0.29<\/p>\r\n<p dir=\"ltr\">Fund B: Return = 16%, Risk-free = 6%, SD = 18%<\/p>\r\n<p dir=\"ltr\">Sharpe Ratio = (16 \u2212 6) \/ 18 = 10 \/ 18 = 0.56<\/p>\r\n<p dir=\"ltr\">Fund B is better because it generates more return per unit of risk.<\/p>\r\n<p dir=\"ltr\"><strong>Table: Sharpe Ratio Interpretation<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Sharpe Ratio<\/th>\r\n<th scope=\"col\">Meaning<\/th>\r\n<th scope=\"col\">Implication<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>&lt; 0<\/td>\r\n<td>Fund underperformed risk-free return<\/td>\r\n<td>Poor<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0\u20130.5<\/td>\r\n<td>Low risk-adjusted return<\/td>\r\n<td>Average<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0.5\u20131<\/td>\r\n<td>Good risk-adjusted return<\/td>\r\n<td>Strong<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>&gt; 1<\/td>\r\n<td>Excellent risk-adjusted return<\/td>\r\n<td>Very strong<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> The Sharpe ratio is most useful for comparing funds within the same category. It helps investors identify which fund delivers the best balance of risk and reward.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='Sortino-Ratio-Focusing-on-Downside-Risk' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2>22.5 <strong>Sortino Ratio \u2013 Focusing on Downside Risk<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77992 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio.png\" alt=\"Sortino Ratio\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p dir=\"ltr\">The Sortino Ratio is a refinement of the Sharpe Ratio. While Sharpe considers total volatility (both upside and downside), Sortino focuses only on downside volatility, the risk of losses. This makes it more relevant for investors who care more about avoiding losses than capturing gains.<\/p>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">Sortino Ratio = (R_fund \u2212 R_risk-free) \/ \u03c3_downside<\/p>\r\n<p dir=\"ltr\">Where:<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>R_fund<\/strong> = Fund return<\/li>\r\n<li><strong>R_risk-free<\/strong> = Risk-free return<\/li>\r\n<li><strong>\u03c3_downside<\/strong> = Downside deviation (volatility of returns below a minimum acceptable return, such as zero or the risk-free rate)<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<p dir=\"ltr\">Fund A: Return = 14%, Risk-free = 6%, Downside deviation = 20%<\/p>\r\n<p dir=\"ltr\">Sortino Ratio = (14 \u2212 6) \/ 20 = 8 \/ 20 = 0.40<\/p>\r\n<p dir=\"ltr\">Fund B: Return = 14%, Risk-free = 6%, Downside deviation = 12%<\/p>\r\n<p dir=\"ltr\">Sortino Ratio = (14 \u2212 6) \/ 12 = 8 \/ 12 = 0.67<\/p>\r\n<p dir=\"ltr\">Fund B is better because it generates more return per unit of downside risk.<\/p>\r\n<p dir=\"ltr\"><strong>Table: Sortino Ratio Interpretation<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Sortino Ratio<\/th>\r\n<th scope=\"col\">Meaning<\/th>\r\n<th scope=\"col\">Implication<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>&lt; 0<\/td>\r\n<td>Fund underperformed risk-free return<\/td>\r\n<td>Poor<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0\u20130.5<\/td>\r\n<td>Low downside-adjusted return<\/td>\r\n<td>Average<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0.5\u20131<\/td>\r\n<td>Good downside-adjusted return<\/td>\r\n<td>Strong<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>&gt; 1<\/td>\r\n<td>Excellent downside-adjusted return<\/td>\r\n<td>Very strong<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> Sortino is especially useful for equity funds, where volatility is natural but investors want to minimize downside risk.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide06' class='sa_hover_container' data-hash='Capture-Ratios-Measuring-Market-Participation' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2>22.6 <strong>Capture Ratios \u2013 Measuring Market Participation<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77993 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios.png\" alt=\"Capture Ratios\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p dir=\"ltr\">Capture Ratios measure how much of the market\u2019s upside or downside a fund captures.<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>Upside Capture Ratio:<\/strong> How much the fund gains when the market rises.<\/li>\r\n<li><strong>Downside Capture Ratio:<\/strong> How much the fund loses when the market falls.<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">Upside Capture Ratio = (Fund return in up-market periods \/ Benchmark return in up-market periods) \u00d7 100<\/p>\r\n<p dir=\"ltr\">Downside Capture Ratio = (Fund return in down-market periods \/ Benchmark return in down-market periods) \u00d7 100<\/p>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<ul dir=\"ltr\">\r\n<li>Benchmark rises 10%, Fund rises 12% \u2192 Upside capture = (12 \/ 10) \u00d7 100 = 120%<\/li>\r\n<li>Benchmark falls 10%, Fund falls 8% \u2192 Downside capture = (\u22128 \/ \u221210) \u00d7 100 = 80%<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Table: Capture Ratio Interpretation<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Ratio<\/th>\r\n<th scope=\"col\">Meaning<\/th>\r\n<th scope=\"col\">Implication<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Upside &gt; 100%<\/td>\r\n<td>Fund outperforms in rallies<\/td>\r\n<td>Aggressive growth<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Upside &lt; 100%<\/td>\r\n<td>Fund lags in rallies<\/td>\r\n<td>Defensive<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Downside &lt; 100%<\/td>\r\n<td>Fund loses less in downturns<\/td>\r\n<td>Protective<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Downside &gt; 100%<\/td>\r\n<td>Fund loses more in downturns<\/td>\r\n<td>Risky<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> A good fund ideally has Upside &gt; 100% and Downside &lt; 100%, meaning it gains more in rallies and loses less in corrections.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide07' class='sa_hover_container' data-hash='R-squared-Measuring-Correlation-with-Benchmark' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>22.7. <\/strong><strong><b>R-squared \u2013 Measuring Correlation with Benchmark<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77994 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared.png\" alt=\"R- Squared\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>R-squared (R\u00b2) shows what percentage of a fund\u2019s movements can be explained by movements in its benchmark. It ranges from 0 to 100.<\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>High R\u00b2 (close to 100):<\/b><\/strong>Fund closely tracks the benchmark.<\/li>\r\n<li><b><\/b><strong><b>Low R\u00b2 (close to 0):<\/b><\/strong>Fund behaves differently from the benchmark.<\/li>\r\n<\/ul>\r\n<p><strong><b>Example:<\/b><\/strong><\/p>\r\n<ul>\r\n<li>Fund A: R\u00b2 = 95 \u2192 Moves almost exactly like the benchmark.<\/li>\r\n<li>Fund B: R\u00b2 = 60 \u2192 Moves differently, indicating active management.<\/li>\r\n<\/ul>\r\n<p><strong><b>Table: R-squared Interpretation<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>R\u00b2 Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Meaning<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Implication<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>90\u2013100<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Fund tracks benchmark closely<\/p>\r\n<\/td>\r\n<td>\r\n<p>Passive style<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>70\u201390<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Moderate correlation<\/p>\r\n<\/td>\r\n<td>\r\n<p>Semi-active<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>&lt; 70<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Low correlation<\/p>\r\n<\/td>\r\n<td>\r\n<p>Highly active<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Key Insight:<\/b><\/strong>\u00a0R\u00b2 helps investors understand whether a fund is truly active or just hugging the index. A high R\u00b2 with low alpha suggests the fund is not adding much value.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide08' class='sa_hover_container' data-hash='Information-Ratio-Consistency-of-Outperformance' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong>22.8. Information Ratio<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77995 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio.png\" alt=\"Information Ratio\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<div>\r\n<div role=\"feed\" aria-label=\"Chat messages\" aria-describedby=\"_r_ca_\">\r\n<div>\r\n<div role=\"article\" aria-label=\"Message 18 of 18\">\r\n<div>\r\n<div>\r\n<p dir=\"ltr\">The Information Ratio (IR) measures how consistently a fund outperforms its benchmark, adjusted for tracking error.<\/p>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">IR = (R_fund \u2212 R_benchmark) \/ Tracking Error<\/p>\r\n<p dir=\"ltr\">Where:<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>R_fund<\/strong> = Fund return<\/li>\r\n<li><strong>R_benchmark<\/strong> = Benchmark return<\/li>\r\n<li><strong>Tracking Error<\/strong> = Volatility of excess returns, i.e. the standard deviation of (R_fund \u2212 R_benchmark)<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<p dir=\"ltr\">Fund return = 12%, Benchmark return = 10%, Tracking error = 2%<\/p>\r\n<p dir=\"ltr\">IR = (12 \u2212 10) \/ 2 = 2 \/ 2 = 1.0<\/p>\r\n<p dir=\"ltr\">An IR of 1.0 sits at the boundary between \u201cStrong\u201d and \u201cVery strong\u201d in the table below.<\/p>\r\n<p dir=\"ltr\"><strong>Table: Information Ratio Interpretation<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">IR Value<\/th>\r\n<th scope=\"col\">Meaning<\/th>\r\n<th scope=\"col\">Implication<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>&lt; 0<\/td>\r\n<td>Fund underperformed benchmark<\/td>\r\n<td>Poor<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0\u20130.5<\/td>\r\n<td>Low consistency<\/td>\r\n<td>Average<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0.5\u20131<\/td>\r\n<td>Good consistency<\/td>\r\n<td>Strong<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>&gt; 1<\/td>\r\n<td>Excellent consistency<\/td>\r\n<td>Very strong<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> IR is especially useful for evaluating active funds. A high IR means the manager consistently adds value, not just occasionally.<\/p>\r\n<\/div>\r\n<div role=\"group\" aria-label=\"Suggested actions\">\u00a0<\/div>\r\n<\/div>\r\n<div>\u00a0<\/div>\r\n<\/div>\r\n<\/div>\r\n<div aria-hidden=\"true\">\u00a0<\/div>\r\n<\/div>\r\n<div>\r\n<div>\u00a0<\/div>\r\n<div>\r\n<div>\r\n<div>\r\n<div>\u00a0<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<div aria-hidden=\"true\">\u00a0<\/div>\r\n<\/div>\r\n<div aria-hidden=\"true\">\u00a0<\/div>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide09' class='sa_hover_container' data-hash='Key-Takeaways' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>22.9. <\/strong><strong><b>Key Takeaways\u00a0<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-76118 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png\" alt=\"Key Takeaways\" width=\"444\" height=\"418\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png 444w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-300x282.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-50x47.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-100x94.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-150x141.png 150w\" sizes=\"(max-width: 444px) 100vw, 444px\" \/><\/p>\r\n<ol>\r\n<li><strong><b> Beta<\/b><\/strong>\u2013 Relative Risk Beta measures how volatile a mutual fund is compared to its benchmark. A beta of 1 means the fund moves in line with the benchmark, less than 1 means it is defensive, and greater than 1 means it is aggressive. Importantly, beta is a measure of <em><i>relative risk<\/i><\/em>, not absolute risk. It tells you how the fund behaves compared to the market, but not how risky it is in isolation. Investors should use beta to understand whether a fund amplifies or dampens market movements, and align this with their own risk appetite.<\/li>\r\n<li><strong><b> Alpha<\/b><\/strong>\u2013 Excess Return Adjusted for Risk Alpha is the true test of a fund manager\u2019s skill. It measures how much return a fund generates over and above what is expected, given its risk profile. A positive alpha indicates outperformance, while a negative alpha signals underperformance. Crucially, alpha is risk-adjusted\u2014it rewards funds that deliver returns with lower market risk (beta) and penalizes those that rely on a higher beta to generate returns. For investors, alpha is the metric that separates genuine skill from mere luck.<\/li>\r\n<li><strong><b> Standard Deviation<\/b><\/strong>\u2013 Absolute Volatility Standard deviation captures the inherent volatility of a fund\u2019s returns. Unlike beta, which is relative, SD is absolute\u2014it shows how much the fund\u2019s returns deviate from the average. A higher SD means greater swings in value, which translates to higher risk. Large-cap funds typically have lower SDs, while small-cap funds have higher SDs. Investors who cannot tolerate wide fluctuations should prefer funds with lower SD, while those seeking higher potential returns may accept higher SD.<\/li>\r\n<li><strong><b> Sharpe Ratio<\/b><\/strong>\u2013 Risk-Adjusted Performance The Sharpe Ratio combines risk and return into a single measure. It tells us how much excess return a fund generates for every unit of risk taken. A higher Sharpe Ratio indicates better risk-adjusted performance. This metric is especially useful for comparing funds within the same category, helping investors identify which fund delivers the best balance of risk and reward. However, Sharpe considers total volatility, not just downside risk.<\/li>\r\n<li><strong><b> Sortino Ratio<\/b><\/strong>\u2013 Downside Risk Focus Sortino Ratio refines Sharpe by focusing only on downside volatility\u2014the risk of losses. This makes it more relevant for investors who care more about avoiding losses than capturing gains. A higher Sortino Ratio indicates that the fund generates strong returns relative to its downside risk. For equity investors, Sortino is often more meaningful than Sharpe, because it distinguishes between \u201cgood volatility\u201d (upside gains) and \u201cbad volatility\u201d (downside losses).<\/li>\r\n<li><strong><b> Capture Ratios<\/b><\/strong>\u2013 Market Participation Capture Ratios show how much of the market\u2019s upside or downside a fund captures. An upside capture ratio above 100% means the fund outperforms in rallies, while a downside capture ratio below 100% means it loses less in downturns. The ideal combination is high upside capture and low downside capture. This metric helps investors understand how a fund behaves across different market cycles, making it a practical tool for assessing resilience.<\/li>\r\n<li><strong><b> R-squared<\/b><\/strong>\u2013 Benchmark Correlation R-squared measures how closely a fund\u2019s movements are correlated with its benchmark. A high R\u00b2 (close to 100) means the fund closely tracks the benchmark, while a low R\u00b2 means it behaves differently. For investors, R\u00b2 helps distinguish between passive index-hugging funds and truly active funds. A high R\u00b2 with low alpha suggests the fund is not adding much value, while a lower R\u00b2 with positive alpha indicates genuine active management.<\/li>\r\n<li><strong><b> Information Ratio<\/b><\/strong>\u2013 Consistency of Outperformance The Information Ratio measures how consistently a fund outperforms its benchmark, adjusted for tracking error. A high IR means the manager consistently adds value, not just occasionally. This metric is particularly useful for evaluating active funds, where consistency of outperformance matters more than one-off gains. For investors, IR provides confidence that a fund\u2019s alpha is repeatable and not a fluke.<\/li>\r\n<\/ol>\r\n<p><strong><b>Overall Conclusion<\/b><\/strong><\/p>\r\n<p>Together, these metrics provide a <strong><b>360-degree view of mutual fund risk and performance<\/b><\/strong>:<\/p>\r\n<ul>\r\n<li>Beta tells you how the fund moves relative to the market.<\/li>\r\n<li>Alpha shows whether the manager adds value beyond the benchmark.<\/li>\r\n<li>Standard deviation reveals the inherent volatility of the fund.<\/li>\r\n<li>Sharpe and Sortino ratios combine risk and return into meaningful comparisons.<\/li>\r\n<li>Capture ratios explain how the fund behaves in bull and bear markets.<\/li>\r\n<li>R-squared shows whether the fund is truly active or just hugging the index.<\/li>\r\n<li>Information Ratio measures the consistency of outperformance.<\/li>\r\n<\/ul>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tjQuery('.text_slider_goto3').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 2);\n\t\t});\n\t\tjQuery('.text_slider_goto4').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 3);\n\t\t});\n\t\tjQuery('.text_slider_goto5').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 4);\n\t\t});\n\t\tjQuery('.text_slider_goto6').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 5);\n\t\t});\n\t\tjQuery('.text_slider_goto7').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 6);\n\t\t});\n\t\tjQuery('.text_slider_goto8').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 7);\n\t\t});\n\t\tjQuery('.text_slider_goto9').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 8);\n\t\t});\n\t\tvar resize_77913 = jQuery('.owl-carousel');\n\t\tresize_77913.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p><p>\u00a0<\/p>                    <\/div>\n\t\t        \n                    <div id=\"slides-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"slides-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='Beta-Understanding-Relative-Risk-in-Depth' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>22.1 <\/strong><strong><b>Beta \u2013 Understanding Relative Risk in Depth<\/b><\/strong><\/h2>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-77988 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA.png\" alt=\"BETA\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/BETA-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Beta is a statistical measure that captures how much a mutual fund\u2019s returns move relative to its benchmark index. It is derived from regression analysis, where the fund\u2019s returns are plotted against the benchmark\u2019s returns over time.<\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Beta = 1<\/b><\/strong>\u2192 On average, the fund moves in line with the benchmark.<\/li>\r\n<li><b><\/b><strong><b>Beta &lt; 1<\/b><\/strong>\u2192 The fund is less volatile than the benchmark.<\/li>\r\n<li><b><\/b><strong><b>Beta &gt; 1<\/b><\/strong>\u2192 The fund is more volatile than the benchmark.<\/li>\r\n<li><b><\/b><strong><b>Beta &lt; 0<\/b><\/strong>\u2192 Rare, but indicates the fund moves inversely to the benchmark.<\/li>\r\n<\/ul>\r\n<p><strong><b>Formula (Regression-based):<\/b><\/strong><\/p>\r\n<p>\u03b2 = Cov(R_fund, R_benchmark) \/ Var(R_benchmark)<\/p>\r\n<p>Where:<\/p>\r\n<ul>\r\n<li>Cov = covariance between fund and benchmark returns<\/li>\r\n<li>Var = variance of benchmark returns<\/li>\r\n<\/ul>\r\n<p><strong><b>Example:<\/b><\/strong>\u00a0Suppose the benchmark index falls by 10%.<\/p>\r\n<ul>\r\n<li>Fund A (Beta = 0.8) \u2192 Expected fall = 8%<\/li>\r\n<li>Fund B (Beta = 1.0) \u2192 Expected fall = 10%<\/li>\r\n<li>Fund C (Beta = 1.2) \u2192 Expected fall = 12%<\/li>\r\n<\/ul>\r\n<p><strong><b>Table: Beta Interpretation<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Beta Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Meaning<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Investor Profile<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>&lt; 1<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Defensive fund, lower volatility<\/p>\r\n<\/td>\r\n<td>\r\n<p>Conservative<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>= 1<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Neutral, tracks benchmark<\/p>\r\n<\/td>\r\n<td>\r\n<p>Balanced<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>&gt; 1<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Aggressive, higher volatility<\/p>\r\n<\/td>\r\n<td>\r\n<p>Risk-seeking<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>&lt; 0<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Inverse correlation<\/p>\r\n<\/td>\r\n<td>\r\n<p>Hedging strategy<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Key Insight:<\/b><\/strong>\u00a0Beta is relative risk, not absolute risk. It tells you how the fund compares to its benchmark, but not how risky it is in isolation. For absolute risk, we need standard deviation.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='Alpha\u2013Measuring-Skill-and-Excess-Return' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>22.2 <\/b><\/strong><strong><b>Alpha \u2013 Measuring Skill and Excess Return<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77989 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA.png\" alt=\"ALPHA\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/ALPHA-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Alpha is the measure of a fund manager\u2019s ability to generate returns above what is expected, given the fund\u2019s risk profile. It adjusts for both the risk-free rate and the fund\u2019s beta.<\/p>\r\n<p><strong><b>Formula:<\/b><\/strong><\/p>\r\n<p>\u03b1 = (R_fund \u2212 R_risk-free) \u2212 \u03b2 \u00d7 (R_benchmark \u2212 R_risk-free)<\/p>\r\n<p>Where:<\/p>\r\n<ul>\r\n<li>\u03b1= Fund return<\/li>\r\n<li>R_fund= Benchmark return<\/li>\r\n<li>R_risk-free= Risk-free return (e.g., treasury bills)<\/li>\r\n<li>\u03b2 = Fund\u2019s beta<\/li>\r\n<\/ul>\r\n<p><strong><b>Example 1 (Low Beta):<\/b><\/strong><\/p>\r\n<ul>\r\n<li>Fund return = 12%<\/li>\r\n<li>Benchmark return = 10%<\/li>\r\n<li>Risk-free return = 4%<\/li>\r\n<li>Beta = 0.8<\/li>\r\n<\/ul>\r\n<p>\u03b1 = (12 \u2212 4) \u2212 0.8 \u00d7 (10 \u2212 4) = 8 \u2212 4.8 = 3.2%<\/p>\r\n<p>Here, the fund is rewarded for generating higher returns with lower market risk (beta).<\/p>\r\n<p><strong><b>Example 2 (High Beta):<\/b><\/strong>\u00a0Same returns, but Beta = 1.3:<\/p>\r\n<p>\u03b1 = (12 \u2212 4) \u2212 1.3 \u00d7 (10 \u2212 4) = 8 \u2212 7.8 = 0.2%<\/p>\r\n<p>The fund\u2019s alpha shrinks because it took more market risk (a higher beta) to earn the same return.<\/p>\r\n<p><strong><b>Table: Alpha Interpretation<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Alpha Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Meaning<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Implication<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Positive<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Beat its risk\u2011adjusted expected return<\/p>\r\n<\/td>\r\n<td>\r\n<p>Good manager skill<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Zero<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Matched its risk\u2011adjusted expected return<\/p>\r\n<\/td>\r\n<td>\r\n<p>Neutral<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Negative<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Fell short of its risk\u2011adjusted expected return<\/p>\r\n<\/td>\r\n<td>\r\n<p>Poor manager skill<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Key Insight:<\/b><\/strong>\u00a0Alpha is a risk-adjusted measure of performance. It rewards funds that deliver returns with lower market risk (beta) and penalizes those that rely on a higher beta to generate returns.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Standard-Deviation-Measuring-Absolute-volatility' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2>22.3 <strong><b>Standard Deviation \u2013 Measuring Absolute Volatility<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77990 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation.png\" alt=\"Standard Deviation\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Standard-Deviation-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p dir=\"ltr\">Standard deviation (SD) is the most direct measure of risk. It shows how much a fund\u2019s returns deviate from its average return. A higher SD means greater volatility, which translates to higher risk.<\/p>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">\u03c3 = \u221a[ \u03a3(R\u1d62 \u2212 R\u0304)\u00b2 \/ (n \u2212 1) ]<\/p>\r\n<p dir=\"ltr\">Where:<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>R\u1d62<\/strong> = Individual return<\/li>\r\n<li><strong>R\u0304<\/strong> = Average return<\/li>\r\n<li><strong>n<\/strong> = Number of observations<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\">(If your original divides by n instead of n \u2212 1, that\u2019s the population version. Both are used, and n \u2212 1 is the usual choice for a sample of past returns.)<\/p>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<ul dir=\"ltr\">\r\n<li>Fund A: Average return = 12%, SD = 10%<\/li>\r\n<li>Fund B: Average return = 12%, SD = 20%<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\">Fund B is riskier because its returns fluctuate more widely.<\/p>\r\n<p dir=\"ltr\"><strong>Table: Standard Deviation Comparison<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Fund Type<\/th>\r\n<th scope=\"col\">Average Return<\/th>\r\n<th scope=\"col\">SD<\/th>\r\n<th scope=\"col\">Risk Profile<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Large-cap Fund<\/td>\r\n<td><span dir=\"ltr\">10%<\/span><\/td>\r\n<td><span dir=\"ltr\">12%<\/span><\/td>\r\n<td>Moderate<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Mid-cap Fund<\/td>\r\n<td><span dir=\"ltr\">12%<\/span><\/td>\r\n<td><span dir=\"ltr\">18%<\/span><\/td>\r\n<td>High<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Small-cap Fund<\/td>\r\n<td><span dir=\"ltr\">14%<\/span><\/td>\r\n<td><span dir=\"ltr\">25%<\/span><\/td>\r\n<td>Very High<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Investor Implication:<\/strong> If you invest \u20b91,00,000 in a fund with SD = 20% and an average return of 12%, then in roughly two out of three years your investment could end the year anywhere between about \u20b992,000 and \u20b91,32,000 (average \u00b1 one SD). In bad years, the fall can be larger.<\/p>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> SD captures absolute risk, unlike beta, which is relative. Investors who cannot tolerate volatility should prefer funds with lower SD.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash='Sharpe-Ratio-Risk-Adjusted-Performance' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>22.4. <\/strong><strong>Sharpe Ratio \u2013 Risk-Adjusted Performance<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77991 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio.png\" alt=\"Sharpe Ratio\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sharpe-Ratio-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p dir=\"ltr\">The Sharpe Ratio, developed by Nobel laureate William Sharpe, combines risk and return into a single measure. It tells us how much excess return a fund generates for every unit of risk taken.<\/p>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">Sharpe Ratio = (R_fund \u2212 R_risk-free) \/ \u03c3_fund<\/p>\r\n<p dir=\"ltr\">Where:<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>R_fund<\/strong> = Fund return<\/li>\r\n<li><strong>R_risk-free<\/strong> = Risk-free return<\/li>\r\n<li><strong>\u03c3_fund<\/strong> = Standard deviation of the fund<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<p dir=\"ltr\">Fund A: Return = 14%, Risk-free = 6%, SD = 28%<\/p>\r\n<p dir=\"ltr\">Sharpe Ratio = (14 \u2212 6) \/ 28 = 8 \/ 28 = 0.29<\/p>\r\n<p dir=\"ltr\">Fund B: Return = 16%, Risk-free = 6%, SD = 18%<\/p>\r\n<p dir=\"ltr\">Sharpe Ratio = (16 \u2212 6) \/ 18 = 10 \/ 18 = 0.56<\/p>\r\n<p dir=\"ltr\">Fund B is better because it generates more return per unit of risk.<\/p>\r\n<p dir=\"ltr\"><strong>Table: Sharpe Ratio Interpretation<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Sharpe Ratio<\/th>\r\n<th scope=\"col\">Meaning<\/th>\r\n<th scope=\"col\">Implication<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>&lt; 0<\/td>\r\n<td>Fund underperformed risk-free return<\/td>\r\n<td>Poor<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0\u20130.5<\/td>\r\n<td>Low risk-adjusted return<\/td>\r\n<td>Average<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0.5\u20131<\/td>\r\n<td>Good risk-adjusted return<\/td>\r\n<td>Strong<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>&gt; 1<\/td>\r\n<td>Excellent risk-adjusted return<\/td>\r\n<td>Very strong<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> The Sharpe ratio is most useful for comparing funds within the same category. It helps investors identify which fund delivers the best balance of risk and reward.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='Sortino-Ratio-Focusing-on-Downside-Risk' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2>22.5 <strong>Sortino Ratio \u2013 Focusing on Downside Risk<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77992 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio.png\" alt=\"Sortino Ratio\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Sortino-Ratio-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p dir=\"ltr\">The Sortino Ratio is a refinement of the Sharpe Ratio. While Sharpe considers total volatility (both upside and downside), Sortino focuses only on downside volatility, the risk of losses. This makes it more relevant for investors who care more about avoiding losses than capturing gains.<\/p>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">Sortino Ratio = (R_fund \u2212 R_risk-free) \/ \u03c3_downside<\/p>\r\n<p dir=\"ltr\">Where:<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>R_fund<\/strong> = Fund return<\/li>\r\n<li><strong>R_risk-free<\/strong> = Risk-free return<\/li>\r\n<li><strong>\u03c3_downside<\/strong> = Downside deviation (volatility of returns below a minimum acceptable return, such as zero or the risk-free rate)<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<p dir=\"ltr\">Fund A: Return = 14%, Risk-free = 6%, Downside deviation = 20%<\/p>\r\n<p dir=\"ltr\">Sortino Ratio = (14 \u2212 6) \/ 20 = 8 \/ 20 = 0.40<\/p>\r\n<p dir=\"ltr\">Fund B: Return = 14%, Risk-free = 6%, Downside deviation = 12%<\/p>\r\n<p dir=\"ltr\">Sortino Ratio = (14 \u2212 6) \/ 12 = 8 \/ 12 = 0.67<\/p>\r\n<p dir=\"ltr\">Fund B is better because it generates more return per unit of downside risk.<\/p>\r\n<p dir=\"ltr\"><strong>Table: Sortino Ratio Interpretation<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Sortino Ratio<\/th>\r\n<th scope=\"col\">Meaning<\/th>\r\n<th scope=\"col\">Implication<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>&lt; 0<\/td>\r\n<td>Fund underperformed risk-free return<\/td>\r\n<td>Poor<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0\u20130.5<\/td>\r\n<td>Low downside-adjusted return<\/td>\r\n<td>Average<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0.5\u20131<\/td>\r\n<td>Good downside-adjusted return<\/td>\r\n<td>Strong<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>&gt; 1<\/td>\r\n<td>Excellent downside-adjusted return<\/td>\r\n<td>Very strong<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> Sortino is especially useful for equity funds, where volatility is natural but investors want to minimize downside risk.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide06' class='sa_hover_container' data-hash='Capture-Ratios-Measuring-Market-Participation' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2>22.6 <strong>Capture Ratios \u2013 Measuring Market Participation<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77993 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios.png\" alt=\"Capture Ratios\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Capture-Ratios-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p dir=\"ltr\">Capture Ratios measure how much of the market\u2019s upside or downside a fund captures.<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>Upside Capture Ratio:<\/strong> How much the fund gains when the market rises.<\/li>\r\n<li><strong>Downside Capture Ratio:<\/strong> How much the fund loses when the market falls.<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">Upside Capture Ratio = (Fund return in up-market periods \/ Benchmark return in up-market periods) \u00d7 100<\/p>\r\n<p dir=\"ltr\">Downside Capture Ratio = (Fund return in down-market periods \/ Benchmark return in down-market periods) \u00d7 100<\/p>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<ul dir=\"ltr\">\r\n<li>Benchmark rises 10%, Fund rises 12% \u2192 Upside capture = (12 \/ 10) \u00d7 100 = 120%<\/li>\r\n<li>Benchmark falls 10%, Fund falls 8% \u2192 Downside capture = (\u22128 \/ \u221210) \u00d7 100 = 80%<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Table: Capture Ratio Interpretation<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Ratio<\/th>\r\n<th scope=\"col\">Meaning<\/th>\r\n<th scope=\"col\">Implication<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Upside &gt; 100%<\/td>\r\n<td>Fund outperforms in rallies<\/td>\r\n<td>Aggressive growth<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Upside &lt; 100%<\/td>\r\n<td>Fund lags in rallies<\/td>\r\n<td>Defensive<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Downside &lt; 100%<\/td>\r\n<td>Fund loses less in downturns<\/td>\r\n<td>Protective<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Downside &gt; 100%<\/td>\r\n<td>Fund loses more in downturns<\/td>\r\n<td>Risky<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> A good fund ideally has Upside &gt; 100% and Downside &lt; 100%, meaning it gains more in rallies and loses less in corrections.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide07' class='sa_hover_container' data-hash='R-squared-Measuring-Correlation-with-Benchmark' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>22.7. <\/strong><strong><b>R-squared \u2013 Measuring Correlation with Benchmark<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77994 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared.png\" alt=\"R- Squared\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/R-Squared-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>R-squared (R\u00b2) shows what percentage of a fund\u2019s movements can be explained by movements in its benchmark. It ranges from 0 to 100.<\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>High R\u00b2 (close to 100):<\/b><\/strong>Fund closely tracks the benchmark.<\/li>\r\n<li><b><\/b><strong><b>Low R\u00b2 (close to 0):<\/b><\/strong>Fund behaves differently from the benchmark.<\/li>\r\n<\/ul>\r\n<p><strong><b>Example:<\/b><\/strong><\/p>\r\n<ul>\r\n<li>Fund A: R\u00b2 = 95 \u2192 Moves almost exactly like the benchmark.<\/li>\r\n<li>Fund B: R\u00b2 = 60 \u2192 Moves differently, indicating active management.<\/li>\r\n<\/ul>\r\n<p><strong><b>Table: R-squared Interpretation<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>R\u00b2 Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Meaning<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Implication<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>90\u2013100<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Fund tracks benchmark closely<\/p>\r\n<\/td>\r\n<td>\r\n<p>Passive style<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>70\u201390<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Moderate correlation<\/p>\r\n<\/td>\r\n<td>\r\n<p>Semi-active<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>&lt; 70<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Low correlation<\/p>\r\n<\/td>\r\n<td>\r\n<p>Highly active<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Key Insight:<\/b><\/strong>\u00a0R\u00b2 helps investors understand whether a fund is truly active or just hugging the index. A high R\u00b2 with low alpha suggests the fund is not adding much value.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide08' class='sa_hover_container' data-hash='Information-Ratio-Consistency-of-Outperformance' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong>22.8. Information Ratio<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77995 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio.png\" alt=\"Information Ratio\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Information-Ratio-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<div>\r\n<div role=\"feed\" aria-label=\"Chat messages\" aria-describedby=\"_r_ca_\">\r\n<div>\r\n<div role=\"article\" aria-label=\"Message 18 of 18\">\r\n<div>\r\n<div>\r\n<p dir=\"ltr\">The Information Ratio (IR) measures how consistently a fund outperforms its benchmark, adjusted for tracking error.<\/p>\r\n<p dir=\"ltr\"><strong>Formula:<\/strong><\/p>\r\n<p dir=\"ltr\">IR = (R_fund \u2212 R_benchmark) \/ Tracking Error<\/p>\r\n<p dir=\"ltr\">Where:<\/p>\r\n<ul dir=\"ltr\">\r\n<li><strong>R_fund<\/strong> = Fund return<\/li>\r\n<li><strong>R_benchmark<\/strong> = Benchmark return<\/li>\r\n<li><strong>Tracking Error<\/strong> = Volatility of excess returns, i.e. the standard deviation of (R_fund \u2212 R_benchmark)<\/li>\r\n<\/ul>\r\n<p dir=\"ltr\"><strong>Example:<\/strong><\/p>\r\n<p dir=\"ltr\">Fund return = 12%, Benchmark return = 10%, Tracking error = 2%<\/p>\r\n<p dir=\"ltr\">IR = (12 \u2212 10) \/ 2 = 2 \/ 2 = 1.0<\/p>\r\n<p dir=\"ltr\">An IR of 1.0 sits at the boundary between \u201cStrong\u201d and \u201cVery strong\u201d in the table below.<\/p>\r\n<p dir=\"ltr\"><strong>Table: Information Ratio Interpretation<\/strong><\/p>\r\n<div dir=\"ltr\">\r\n<table>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">IR Value<\/th>\r\n<th scope=\"col\">Meaning<\/th>\r\n<th scope=\"col\">Implication<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>&lt; 0<\/td>\r\n<td>Fund underperformed benchmark<\/td>\r\n<td>Poor<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0\u20130.5<\/td>\r\n<td>Low consistency<\/td>\r\n<td>Average<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>0.5\u20131<\/td>\r\n<td>Good consistency<\/td>\r\n<td>Strong<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>&gt; 1<\/td>\r\n<td>Excellent consistency<\/td>\r\n<td>Very strong<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<p dir=\"ltr\"><strong>Key Insight:<\/strong> IR is especially useful for evaluating active funds. A high IR means the manager consistently adds value, not just occasionally.<\/p>\r\n<\/div>\r\n<div role=\"group\" aria-label=\"Suggested actions\">\u00a0<\/div>\r\n<\/div>\r\n<div>\u00a0<\/div>\r\n<\/div>\r\n<\/div>\r\n<div aria-hidden=\"true\">\u00a0<\/div>\r\n<\/div>\r\n<div>\r\n<div>\u00a0<\/div>\r\n<div>\r\n<div>\r\n<div>\r\n<div>\u00a0<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<div aria-hidden=\"true\">\u00a0<\/div>\r\n<\/div>\r\n<div aria-hidden=\"true\">\u00a0<\/div>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide09' class='sa_hover_container' data-hash='Key-Takeaways' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>22.9. <\/strong><strong><b>Key Takeaways\u00a0<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-76118 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png\" alt=\"Key Takeaways\" width=\"444\" height=\"418\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png 444w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-300x282.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-50x47.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-100x94.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-150x141.png 150w\" sizes=\"(max-width: 444px) 100vw, 444px\" \/><\/p>\r\n<ol>\r\n<li><strong><b> Beta<\/b><\/strong>\u2013 Relative Risk Beta measures how volatile a mutual fund is compared to its benchmark. A beta of 1 means the fund moves in line with the benchmark, less than 1 means it is defensive, and greater than 1 means it is aggressive. Importantly, beta is a measure of <em><i>relative risk<\/i><\/em>, not absolute risk. It tells you how the fund behaves compared to the market, but not how risky it is in isolation. Investors should use beta to understand whether a fund amplifies or dampens market movements, and align this with their own risk appetite.<\/li>\r\n<li><strong><b> Alpha<\/b><\/strong>\u2013 Excess Return Adjusted for Risk Alpha is the true test of a fund manager\u2019s skill. It measures how much return a fund generates over and above what is expected, given its risk profile. A positive alpha indicates outperformance, while a negative alpha signals underperformance. Crucially, alpha is risk-adjusted\u2014it rewards funds that deliver returns with lower market risk (beta) and penalizes those that rely on a higher beta to generate returns. For investors, alpha is the metric that separates genuine skill from mere luck.<\/li>\r\n<li><strong><b> Standard Deviation<\/b><\/strong>\u2013 Absolute Volatility Standard deviation captures the inherent volatility of a fund\u2019s returns. Unlike beta, which is relative, SD is absolute\u2014it shows how much the fund\u2019s returns deviate from the average. A higher SD means greater swings in value, which translates to higher risk. Large-cap funds typically have lower SDs, while small-cap funds have higher SDs. Investors who cannot tolerate wide fluctuations should prefer funds with lower SD, while those seeking higher potential returns may accept higher SD.<\/li>\r\n<li><strong><b> Sharpe Ratio<\/b><\/strong>\u2013 Risk-Adjusted Performance The Sharpe Ratio combines risk and return into a single measure. It tells us how much excess return a fund generates for every unit of risk taken. A higher Sharpe Ratio indicates better risk-adjusted performance. This metric is especially useful for comparing funds within the same category, helping investors identify which fund delivers the best balance of risk and reward. However, Sharpe considers total volatility, not just downside risk.<\/li>\r\n<li><strong><b> Sortino Ratio<\/b><\/strong>\u2013 Downside Risk Focus Sortino Ratio refines Sharpe by focusing only on downside volatility\u2014the risk of losses. This makes it more relevant for investors who care more about avoiding losses than capturing gains. A higher Sortino Ratio indicates that the fund generates strong returns relative to its downside risk. For equity investors, Sortino is often more meaningful than Sharpe, because it distinguishes between \u201cgood volatility\u201d (upside gains) and \u201cbad volatility\u201d (downside losses).<\/li>\r\n<li><strong><b> Capture Ratios<\/b><\/strong>\u2013 Market Participation Capture Ratios show how much of the market\u2019s upside or downside a fund captures. An upside capture ratio above 100% means the fund outperforms in rallies, while a downside capture ratio below 100% means it loses less in downturns. The ideal combination is high upside capture and low downside capture. This metric helps investors understand how a fund behaves across different market cycles, making it a practical tool for assessing resilience.<\/li>\r\n<li><strong><b> R-squared<\/b><\/strong>\u2013 Benchmark Correlation R-squared measures how closely a fund\u2019s movements are correlated with its benchmark. A high R\u00b2 (close to 100) means the fund closely tracks the benchmark, while a low R\u00b2 means it behaves differently. For investors, R\u00b2 helps distinguish between passive index-hugging funds and truly active funds. A high R\u00b2 with low alpha suggests the fund is not adding much value, while a lower R\u00b2 with positive alpha indicates genuine active management.<\/li>\r\n<li><strong><b> Information Ratio<\/b><\/strong>\u2013 Consistency of Outperformance The Information Ratio measures how consistently a fund outperforms its benchmark, adjusted for tracking error. A high IR means the manager consistently adds value, not just occasionally. This metric is particularly useful for evaluating active funds, where consistency of outperformance matters more than one-off gains. For investors, IR provides confidence that a fund\u2019s alpha is repeatable and not a fluke.<\/li>\r\n<\/ol>\r\n<p><strong><b>Overall Conclusion<\/b><\/strong><\/p>\r\n<p>Together, these metrics provide a <strong><b>360-degree view of mutual fund risk and performance<\/b><\/strong>:<\/p>\r\n<ul>\r\n<li>Beta tells you how the fund moves relative to the market.<\/li>\r\n<li>Alpha shows whether the manager adds value beyond the benchmark.<\/li>\r\n<li>Standard deviation reveals the inherent volatility of the fund.<\/li>\r\n<li>Sharpe and Sortino ratios combine risk and return into meaningful comparisons.<\/li>\r\n<li>Capture ratios explain how the fund behaves in bull and bear markets.<\/li>\r\n<li>R-squared shows whether the fund is truly active or just hugging the index.<\/li>\r\n<li>Information Ratio measures the consistency of outperformance.<\/li>\r\n<\/ul>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tjQuery('.text_slider_goto3').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 2);\n\t\t});\n\t\tjQuery('.text_slider_goto4').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 3);\n\t\t});\n\t\tjQuery('.text_slider_goto5').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 4);\n\t\t});\n\t\tjQuery('.text_slider_goto6').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 5);\n\t\t});\n\t\tjQuery('.text_slider_goto7').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 6);\n\t\t});\n\t\tjQuery('.text_slider_goto8').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 7);\n\t\t});\n\t\tjQuery('.text_slider_goto9').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 8);\n\t\t});\n\t\tvar resize_77913 = jQuery('.owl-carousel');\n\t\tresize_77913.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p><p>\u00a0<\/p>                    <\/div>\n\t\t        \n                    <div id=\"videos-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"videos-tab\">\n\t\t\t\t        <p><img decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png\" \/><\/p>                    <\/div>\n\t\t                    <\/div>\n        <\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Study Slides Videos 22.1 Beta \u2013 Understanding Relative Risk in Depth Beta is a statistical measure that captures how much a mutual fund\u2019s returns move relative to its benchmark index. It is derived from regression analysis, where the fund\u2019s returns are plotted against the benchmark\u2019s returns over time. Beta = 1\u2192 On average, the fund &#8230; <a title=\"Mutual Fund Beta SD and Sharpe Ratio\" class=\"read-more\" href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-beta-sd-and-sharpe-ratio\/\" aria-label=\"Read more about Mutual Fund Beta SD and Sharpe Ratio\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":11088,"menu_order":14,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"class_list":["post-78089","markets","type-markets","status-publish","format-standard","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/78089","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets"}],"about":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/types\/markets"}],"author":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/comments?post=78089"}],"version-history":[{"count":4,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/78089\/revisions"}],"predecessor-version":[{"id":78134,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/78089\/revisions\/78134"}],"up":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/11088"}],"wp:attachment":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media?parent=78089"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/categories?post=78089"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}