what proportion of the bond mutual funds are within one standard deviation of the mean? This is a topic that many people are looking for. daweaselonline.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, daweaselonline.com would like to introduce to you What is Standard Deviation Standard Deviation in Mutual Funds with examples by Yadnya. Following along are instructions in the video below:
“To yet no investment academy through our various videos. We have said a lot about about investing its importance ways to do it and so on. But now it is for some concrete piece of information telling you where does a front stand. So that you can take an investment call.
We are starting with a series of videos. Showing fund analysis from yagna investment academy. There are certain terms you need to know in order to read the performance of various funds. And so another series of videos starting with this one would familiarize you with all such terms.
So let s get started our first term is standard deviation. It is an easy to understand measure. It is used to understand how risky your investment is that is how volatile it is standard deviation becomes an important measure in case of mutual funds as mutual fund is not a single stock..
But it is a collection of stocks standard deviation your would indicate the stability of a mutual fund portfolio let us understand standard deviation with the help of an example if i want to plot a certain set of data points on a graph the values of which are three four five five and four. It will look something like this now if i want to calculate the mean or average of these data points. I will have to add all of these divided by the number of data points. Which will give me the value of the mean or average.
Which works out to be four point two in this case. Now a simple average or mean can be useful. When the points are not too widespread like in this example. But in the case of mutual funds.
Which is a collection of stocks the performance could be gradually increasing or decreasing. And just an average won t be enough in that case. And so you would need standard deviation along with the average to tell you what is the quality of the average and quality of the average means..
How closely are the data points related to the mean to calculate standard deviation first. We need variance variance is calculated by subtracting the mean from each data point squaring. It adding all these values and then dividing it by the number of data points minus. One which gives a value of zero point seven in this case and further the square root of variance gives you standard deviation.
Which works out to be zero point eight three six seven in this case. So if we try to correlate this example to returns of mutual funds. It means that the returns would vary up or down by the value of standard deviation of that fund from its mean historical data collected with respect to standard deviation helps you to gauge the returns of a fund in future blue chip fronts dead funds. Etc would have a lower standard deviation while make cap and small cap funds would have higher standard deviation like in the example.
That you see in front of you hdfc medium term opportunities fund. Which is a dead fund has a standard deviation of one point four nine where as dsp blackrock micro cap fund. Which is a small cap equity fund has a standard deviation of eighteen point..
Seven. The data has been taken as of 28 february 2017. The time span considered for calculation of average returns and the frequency of calculation of standard deviation may be different for different fund. Fact sheets and scorecards.
But encase of fund analysis. Videos by aetna investment academy. Standard deviation in case of equity would be calculated based on returns of trailing three years and would be calculated each month and in case of debt funds. It would be calculated based on weekly returns available over the past 18 months.
The tricky part with standard deviation is it just reads deviation. It does not indicate whether it is up or down from the mean also if a fund is performing at a steady pace standard deviation is zero. So standard deviation should not be considered into isolation it should be considered with other parameters like alpha beta sharpe ratio etc..
Which we are going to learn in the subsequent videos to get the correct picture of the returns standard deviation can be used to compare funds within the same category also a high standard deviation does not mean. It is bad because in case of equities standard deviation would definitely be higher and in case of stable investments like debt funds it would be lower so friends in this video. We ve seen what a standard deviation. We have seen an example of how it is calculated.
But as far as the fund analysis. Videos go you just have to understand what standard deviation indicates. It shows how risky or volatile your investment is we ve also seen how it should not be read into isolation and should be read with other parameters to get the correct picture of the returns hope. You now understand what is standard deviation thanks for watching this video watch the space for more such topics until then happy investing if you have any questions let us know in the comment section below our videos and if you like ” .
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