[R-SIG-Finance] making sense of 100's of funds

Brian G. Peterson brian at braverock.com
Sat Aug 11 04:46:52 CEST 2007

paul sorenson wrote:
> This is a bit of an open question but the fund manager my super with has 
> over two hundred funds I can move my investment around in.
> Using R I typically focus on a handful of funds, plotting MACD's and and 
> just relying on visualisation methods like that but I was hoping for 
> some pointers on more objective measures re risk, return that are 
> practical to apply to several hundred investment funds.  To be fair, 
> many of the funds are "me too" so it wouldn't hurt to cull this to a 
> significantly smaller set.
> I have some code which downloads the daily fund entry and exit prices 
> into an sqlite database which I read directly with R.
> Any tips for me (an engineer not a statistician) would be most appreciated.

Well, your simplest first cut would be to find a good benchmark for each 
style you're interested in.  Then you can do correlations to the 
benchmark for all the funds in each style.  Funds with a very high 
correlation to the benchmark could probably be replaced more cheaply 
with index ETF's, unless they are low-fee index funds.

For risk, you need to decide which risk measures matter to you. 
variance is the most common measure of risk, but it also has many issues 
in assuming a normal distribution.  You may wish to choose a measure 
such as Sortino's Upside Potential Ratio that utilizes a return target 
called the minimum acceptable return.  Then you could stack-rank the 
funds in a given style, or across styles, by UPR to aid your choice.

I wrote a short overview of multiple Performance and Risk measures as 
the package level help for the PerformanceAnalytics package.  You could 
download the pdf documentation from CRAN, and take a look at section 


   - Brian

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