What is Return Analysis?
Return analysis is an integral component of the Portfolio Analyser Report, designed to calculate optimum returns of your portfolio holdings and associated risks.
How is it calculated?
- Risk: This is quantified as a 3-year standard deviation of return.
- Return: This is determined as a 3-year mean return.
Understanding the Risk/Return Plot:
- The numbers on the plot represent holdings from the top 10 portfolio holdings list.
- Risk/return analysis is demonstrated based on each holding's risk and return over the past three years.
Points to be remembered as per the above chart:
- The horizontal axis signifies the last three years' standard deviation, while the vertical axis represents the mean of three years.
- Underlying holdings include the top 10 portfolio holdings.
- The Benchmark indicates the optimal risk and return based on the past three years.
- The term 'Portfolio' embodies the overall performance as per the return analysis.
A high standard deviation for a stock implies it is risky, and a high mean indicates a higher return. Conversely, a low standard deviation denotes lower risk, and a low mean signifies a lower return.
For instance, if the benchmark according to the portfolio analyzer is 19.94, and stock 1 displays a Mean of 25 and a Standard Deviation of 37, it indicates that, although stock 1 has outperformed the benchmark in terms of mean returns over the last three years, its high standard deviation also makes it highly volatile and risky.