R and R Squared – Any correlation between the fund and the market is shown by R and R Squared. 1.0 is perfect correlation, 0.0 is absolutely no correlation and –1.0 is perfect negative correlation. The Hedge Fund industry sees that an R squared below 0.3 has no market correlation.
Redemptions –The amount at which fund redemptions are accepted.
Reporting Agent – This is an outside third party that views and analyzes the fund in order to verify the fund’s monthly return.
Risk Free Rate for Sharpe Ratio: 5%
Risk Free Rate for Sortino Ratio: 5%
Standard Deviation or Average Standard Deviation – The Standard Deviation of monthly returns.
Rolling 12 Month Standard Deviation – Standard Deviation of Rolling 12 Month Returns.
Sharpe Ratio or Annualized Sharpe Ratio – Here are two ways of stating the same thing:
- The average monthly return minus the monthly risk free rate (we use 0.41%) divided by the Standard Deviation. We take that number and multiply it by the square root of 12 to annualize it.
- [(Average Monthly Return – Risk Free Rate (0.41%) / Standard Deviation] *12 to the 1/2 power.
Rolling 12 Month Sharpe Ratio – This has the same number of calculations as the above Sharpe ratio, yet instead annual and rolling 12 month numbers are used.