The Lemon Fool

I put this on the Technical Analysis board but perhaps that was wrong, anyway, no answers forthcoming so I re-post it here.

I have read a bit about BETA and R-Squared and their correlation but I don't intuitively get it. I have just run a Morningstar X-Ray on my portfolio and is shows the following:-

Beta | 0.68
R-Squared | 0.71
Information Ratio | 0.91
Tracking Error | 4.88

My PF is 66% equities and 23% bonds, the balance being cash and others.
Can anyone help me and put it in simple terms as to what these values mean? Thanks in advance.

EssDeeAitch wrote:My PF is 66% equities and 23% bonds, the balance being cash and others.
Can anyone help me and put it in simple terms as to what these values mean?

It's trying to tell you how well or badly your portfolio performed against whatever index was used by Morningstar. If you aren't trying to run an indexed fund, I wouldn't be sure it was terribly helpful. You can Google the various terms, for example "portfolio beta", which will give some material.

Alaric wrote:

EssDeeAitch wrote:My PF is 66% equities and 23% bonds, the balance being cash and others.
Can anyone help me and put it in simple terms as to what these values mean?

It's trying to tell you how well or badly your portfolio performed against whatever index was used by Morningstar. If you aren't trying to run an indexed fund, I wouldn't be sure it was terribly helpful. You can Google the various terms, for example "portfolio beta", which will give some material.

Sorry for the confusion, I was not relating the measures to a portfolio but to specific funds.

EssDeeAitch wrote:I put this on the Technical Analysis board but perhaps that was wrong, anyway, no answers forthcoming so I re-post it here.

I have read a bit about BETA and R-Squared and their correlation but I don't intuitively get it. I have just run a Morningstar X-Ray on my portfolio and is shows the following:-

Beta | 0.68
R-Squared | 0.71
Information Ratio | 0.91
Tracking Error | 4.88

My PF is 66% equities and 23% bonds, the balance being cash and others.
Can anyone help me and put it in simple terms as to what these values mean? Thanks in advance.

Hi EssDeeAitch - I don't know if this is what you are looking for, but hope it might help:

Beta - by definition, the market has a beta of 1, and the beta of an individual security reflects the extent to which the security's return moves up or down with the market. A security with a beta of less than 1 but more than zero is more stable than the market, and is expected to move less than the market but in the same direction. These securities are often referred to as defensive securities.

R_Squared - beyond me I'm afraid...

Information Ratio (and Tracking Error) - The Information Ratio assesses the risk-adjusted performance of active portfolio managers and measures the relative return achieved by an investment manager divided by the amount of risk the manager has taken relative to a benchmark. The relative return is the difference between the return on the actively managed portfolio and the return on the benchmark. This relative return can be positive or negative. The risk taken relative to the benchmark is the Tracking Error, which is the standard deviation of the relative returns. The formula is: Information Ration = portfolio return - benchmark return / tracking error. The higher the positive IR, the higher the value added by the manager through active management, based on the amount of risk taken relative to the benchmark.

Cheers, OLTB.