NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
Which measure is computed as a scheme's excess return over the risk-free rate divided by the standard deviation of the scheme's returns?
This is the Sharpe ratio. It divides the scheme's return above the risk-free rate by the standard deviation of its returns, showing excess return earned per unit of total risk. Treynor uses beta instead, so it measures only systematic risk.
- ATreynor ratio
- BSharpe ratioCorrect
- CJensen's alpha
- DInformation ratio
Explanation
The Sharpe ratio = (Scheme return - Risk-free return) / Standard deviation, measuring return per unit of total risk. Treynor uses beta in the denominator. Jensen's alpha is a return difference versus CAPM expectation, and the information ratio uses tracking error.
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