Name: Aditi Raj

Roll no.: 95/MBA/220013

Introduction:
1. Sharpe Ratio -
The Sharpe Ratio is the difference between the risk-free return and the return of an investment divided
by the investment’s standard deviation.

In simple words, the Sharpe Ratio adjusts the performance for the excess risk taken by an investor.
However, the investor can measure if the investment aligns his requirements with the Sharpe Ratio.

Sharpe Ratio is also used to carry out the performance of a particular share against the risk. It can
compare two different funds that possess the same risk or same returns to help an investor understand
how well he will be compensated.

Higher Sharpe Ratio means greater returns from an investment at a higher level. Thus, investors aiming
to accumulate higher returns will invest in funds that come with higher risk factors.

2. Alpha -
Alpha is a measure of the performance of an investment as compared to a suitable benchmark index,
such as the S&P 500. An alpha of one (the baseline value is zero) shows that the return on the
investment during a specified time frame outperformed the overall market average by 1%. A negative
alpha number reflects an investment that is underperforming as compared to the market average.

3. Beta -

Beta Ratio equals the ratio of the number of particles of a minimum given size upstream of the
filter to the number of particles of the same size and larger found downstream. Simply put, the
higher the Beta Ratio the higher the Capture Efficiency of the filter.

4. Treynor Ratio -

The Treynor ratio, also known as the reward-to-volatility ratio, is a performance metric for
determining how much excess return was generated for each unit of risk taken on by a
portfolio.

Excess return in this sense refers to the return earned above the return that could have been
earned in a risk-free investment. Although there is no true risk-free investment, treasury
bills are often used to represent the risk-free return in the Treynor ratio.

Comparative Analysis:
We are doing comparative ratio analysis of the following five mutual funds;

1. JM Value Fund

2. Nippon India Value Fund

3. Aditya Birla Sun Life Pure Value Fund

4. Axis Value Fund

5. SBI Long Term Equity Fund

 Ratios calculated on daily returns for last 3 years

1. Ratios of JM Value Fund:

a. Beta

High volatility, 1.03vs0.93

b. Sharpe Ratio

Better risk adjusted returns, 1.22vs1.02

c. Treynor Ratio

Better risk adjusted returns, 0.19vs0.16

d. Alpha

Better risk adjusted returns, 6.12vs3.19

2. Nippon India Value Fund

a. Beta

High volatility, 0.89vs0.81

b. Sharpe Ratio

Better risk adjusted returns, 1.8vs1.53

c. Treynor Ratio

Better risk adjusted returns, 0.32vs0.28

d. Alpha

Better risk adjusted returns, 7.39vs3.69

3. Aditya Birla Sun Life Pure Value Fund

a. Beta

Low volatility, 0.94vs0.94

b. Shrape Ratio

Better risk adjusted returns, 0.76vs0.67

c. Treynor Ratio
Better risk adjusted returns, 0.11vs0.1

d. Alpha

Better risk adjusted returns, 1.34vs-0.17

5. SBI Long Term Equity Fund

a. Beta

High volatility, 0.93vs0.91

b. Shrape Ratio

Better risk adjusted returns, 1.2vs1.01

c. Treynor Ratio

Better risk adjusted returns, 0.18vs0.16

d. Alpha

Better risk adjusted returns, 0.18vs0.16

Conclusion:
Beta value gives idea about how volatile fund performance has been compared to similar funds in the
market. Lower beta implies the fund gives more predictable performance compared to similar funds in
the market. So if you are comparing 2 funds (lets say Fund A and Fund B) in the same category. If Fund A
and Fund B has given 9% returns in last 3 years, but Fund A beta value is lower than Fund B. So you can
say that there is a higher chance that Fund A will continue giving similar returns in future also whereas
Fund B returns may vary.

Sharpe ratio indicates how much risk was taken to generate the returns. Higher the value means, fund
has been able to give better returns for the amount of risk taken. . It is calculated by subtracting the risk-
free return, defined as an Indian Government Bond, from the fund’s returns, and then dividing by the
standard deviation of returns. For example, if fund A and fund B both have 3-year returns of 15%, and
fund A has a Sharpe ratio of 1.40 and fund B has a Sharpe ratio of 1.25, you can chooses fund A, as it has
given higher risk-adjusted return.

Treynor’s ratio indicates how much excess return was generated for each unit of risk taken. Higher the
value means, fund has been able to give better returns for the amount of risk taken. It is calculated by
subtracting the risk-free return, defined as an Indian Government Bond, from the fund’s returns, and
then dividing by the beta of returns. For example, if fund A and fund B both have 3-year returns of 15%,
and fund A has a Treynor’s ratio of 1.40 and fund B has a Treynor’s ratio of 1.25, then you can chooses
fund A, as it has given higher risk-adjusted return.
Alpha indicates how fund generated additional returns compared to a benchmark. . Let’s say if a fund A
benchmarks its returns with Nifty50 returns then alpha equal to 1.0 indicates the fund has beaten the
nifty returns by 1%, so the higher the alpha, the better.