Mutual FundInvesting in mutual funds require know how on the various indicators that may help measure risk. These risk indicators may help provide both traders and investors with a means to determine how a certain mutual fund portfolio would perform against the market. Here are some of the main mutual fund risk indicators.

Alpha

The alpha is usually a measure of a mutual fund’s performance adjusted for risk. It compares the volatility of a fund portfolio and compared to a benchmark index. The alpha represents the value usually added or subtracted to the portfolio’s return. A positive alpha means that the fund portfolio is outperforming the benchmark index while a negative alpha indicated underperformance.

Beta Coefficient

The beta coefficient refers to the measure of volatility of a certain fund portfolio as compared to the overall market. It can be thought of as a tendency of the portfolio in reacting to certain swings in the market. The beta of the market is pegged at 1.0. A fund portfolio with a beta of 1.0 means that its price moves in step with the market. A beta of less than 1.0 indicates a less volatile portfolio while the opposite means having a more volatile portfolio in terms of its investment price.

Standard Deviation

A standard deviation measures the dispersion of data from the mean. It means that the more data is spread apart, the more likely that it will tend towards an extreme. In finance, standard deviation is usually applied to the annual rate of return of a security to determine its volatility. It can be used in mutual funds to tell investors just how much the certain return of a fund would deviate from its expected returns based on historical performance.