Beta of a fund

rolandograndi · May 26th, 2014, 11:41 am

Hello everyone,I want to calculate the beta of a fund. Suppose I know the components of the fund (his portfolio).Is it better to:a. Calculate the beta of the net asset value per share against a benchmarkb. Calculate the beta using the variance-covariance matrix (in this case how do we compute the covariance of the fund and the index?). With this approach we could use volatility of the portfolio calculated by the var-covar matrix which could be more precise.Thanks!

daveangel · May 26th, 2014, 1:45 pm

they are both identical

rolandograndi · May 26th, 2014, 2:08 pm

And for calculate the volatility of the fund?a. Volatility of past NAV per share?b. Variance-Covariance matrix with the components of the fundThanks dave!

Alan · May 26th, 2014, 3:02 pm

I want a new car. Should Ia. Go to a dealer and buy one, orb. Order all the parts off the internet and assemble it myself

rolandograndi · May 26th, 2014, 3:12 pm

Hi Alan!If the fund's portfolio has changed, shouldn't it be more precise to calculate the volatility with b. ?

daveangel · May 26th, 2014, 3:26 pm

QuoteOriginally posted by: rolandograndiHi Alan!If the fund's portfolio has changed, shouldn't it be more precise to calculate the volatility with b. ?not really... it depends what the investment strategy of the fund is

Alan · May 26th, 2014, 3:44 pm

QuoteOriginally posted by: rolandograndiHi Alan!If the fund's portfolio has changed, shouldn't it be more precise to calculate the volatility with b. ?It's not a matter of precision, but depth of analysis. There are industry-standard stats; compute all those.Then, if you want to go further, pick the portfolio and strategy apart to whatever depth makes sense for your purpose. BTW, on returns alone, I suggest always doing an internal rate of return in addition to chaining NAV returns.

rolandograndi · June 4th, 2014, 7:34 am

Thank you very much for your reply Alan!