When people look at mutual funds, they mostly ask: "How much return will I get?" But smart investors ask: "What risk am I taking to get that return?"
That's where risk ratios come in:
- Standard Deviation: How much the fund returns fluctuate from average
- Sharpe Ratio: Return generated per unit of total risk
- Sortino Ratio: Like Sharpe, but only penalizes downside risk
- Beta: How much your fund moves vs market
- Alpha: Extra return delivered by fund manager beyond market
- R-Squared: How closely fund tracks benchmark
- Upside/Downside Capture: Market participation in bull/bear runs
- Max Drawdown: Peak-to-trough drop