Custom Calculation Data Points - Morningstar, Inc.
A B C D E F G H I J K L MN O P Q R S T U V WX Y Z
Custom Calculation Data Points
A measure of the difference between a portfolio's actual returns and its expected performance, given its level of risk as measured by Beta. A positive Alpha figure indicates the portfolio has performed better than its Beta would predict. In contrast, a negative Alpha indicates the portfolio has underperformed, given the expectations established by Beta. Alpha is calculated by taking the excess average monthly return of the investment over the risk-free rate and subtracting Beta times the excess average monthly return of the benchmark over the risk-free rate. The equation is as follows:
M
=
e
R
?
e
B
where,
M= Monthly measure of Alpha
e
R
= Average
monthly excess return of
the
investment
e
B
= Average
monthly excess return of
the
benchmark
= Beta
The resulting Alpha is in monthly terms, because the average returns for the portfolio and benchmark are monthly averages. Morningstar then annualizes Alpha to put it in annual terms.
A = 12M
The same methodology applies for Alpha (non-excess return) except that the raw return is used instead of the excess return. See Excess Return on page 9.
Alpha
Custom Calculation Data Points--October 2016
1
? 2016 Morningstar. All Rights Reserved.
A B C D E F G H I J K L MN O P Q R S T U V WX Y Z
A measure of the difference between a portfolio's actual returns and its expected performance, without factoring in its level of risk as measured by Beta. A positive Alpha figure indicates the portfolio has performed better than its Beta would predict. In contrast, a negative Alpha indicates the portfolio has underperformed, given the expectations established by Beta. Alpha (non-excess return) is calculated by taking the monthly return of the investment and subtracting Beta times the average monthly return of the benchmark. The equation is as follows:
M
=
e
R
?
e
B
where,
M= Monthly measure of Alpha (non-excess)
Re = Average monthly non-excess return of the investment
e
B
= Average
monthly non-excess return of
the benchmark
= Beta
The resulting Alpha (non-excess) is in monthly terms, because the average returns for the portfolio and benchmark are monthly averages. Morningstar then annualizes Alpha (non-excess) to put it in annual terms.
A = 12M
The same methodology applies for Alpha except that the excess return is used instead of the raw return.
Alpha (non-excess return)
The Alpha of the regression unannualized divided by the standard error of the residual standard deviation. In academic terms, it is an abnormal excess return per unit of nonsystematic (nondiversifiable) risk taken.
Appraisal Ratio
The Alpha of the regression unannualized divided by the standard error of the residual standard deviation. In academic terms, it is an abnormal non-excess return per unit of non-systematic (nondiversifiable) risk taken.
Appraisal Ratio (non-excess return)
The mean of the source data, obtained by dividing the sum of several quantities by their number.
Average
The average deviation from the benchmark in absolute terms of the investment's return.
Average Absolute Deviation
Custom Calculation Data Points--October 2016
2
? 2016 Morningstar. All Rights Reserved.
A B C D E F G H I J K L MN O P Q R S T U V WX Y Z
The average of the yearly Max Drawdown measures. This statistic serves as a downside risk measure for the Sterling Ratio. The industry standard is to calculate this over a three-year period using monthly data. In this case, the maximum drawdown measures are calculated from months 1?12, then from months 13?24, and finally from months 25?36. The average drawdown is the average of these three maximum drawdown numbers:
N
MaxDrawdownt
Avg Drawdown=-t--=---1--------------------------------------------------N
Where N is the number of years. Since this statistic is based on yearly numbers, the time period of the analysis must be at least one year and ideally not contain partial years. To accommodate for potential partial years, the formula is generalized as:
n
Avg
Drawdown=
MaxDrawdownt
t=1
---------------------1----2----------------------Tot # of Months
Where n is the number of sub-periods where the last sub-period contains the partial year.
Average Drawdown
The geometric mean of the periods with a gain.
Average Gain
The geometric mean of the periods with a loss.
Average Loss
The annualized average return for a period.
Average Rolling Period Return
The measure of a manager's ability to consistently beat the market. It is calculated by dividing the number of months in which the manager beat or matched an index by the total number of months in the period. For example, a manager who meets or outperforms the market every month in a given period would have a batting average of 100. A manager who beats the market half of the time would have a batting average of 50.
Batting Average
The measure of the sensitivity of a fund's return to negative changes in its benchmark's return.
Bear Beta
Indicates the strength and direction of a linear relationship between two random variables in a bear market. In general statistical usage, correlation or co-relation refers to the departure of two variables from independence. In this broad sense, several coefficients measure the degree of correlation, adapted to the nature of data.
Bear Correlation
Custom Calculation Data Points--October 2016
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? 2016 Morningstar. All Rights Reserved.
A B C D E F G H I J K L MN O P Q R S T U V WX Y Z
The highest monthly return of the investment since its inception or for as long as Morningstar has data available. This data point defaults to the trailing three-year period (which is the default time period for all custom calculated data), but the user may select a different time period.
Best Month
The highest monthly return of the investment since its inception or for as long as Morningstar has data available. This data point defaults to the trailing three-year period (which is the default time period for all custom calculated data), but the user may select a different time period.
Best Month End Date
The highest quarterly (three month) return of the investment since its inception or for as long as Morningstar has data available. This data point defaults to the trailing threeyear period (which is the default time period for all custom calculated data), but the user may select a different time period.
Best Quarter
The measure of systematic risk with respect to the risk-free rate. Systematic risk is
Beta
the tendency of the value of the fund and the value of a benchmark (in this case, the risk-
free rate) to move together. Beta is the ratio of what the excess return of the fund would be
to the excess return of the risk-free rate if there were no fund-specific sources of return.
If Beta is... >1 =1 1 =1 ................
................
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