What’s about all these indicators

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Indexes
  1. 𝗦𝗵𝗮𝗿𝗽𝗲 𝗥𝗮𝘁𝗶𝗼
  2. 𝗦𝗼𝗿𝘁𝗶𝗻𝗼 𝗥𝗮𝘁𝗶𝗼
  3. 𝗠𝗮𝗿𝗸𝗲𝘁 𝗖𝗼𝗿𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻
  4. 𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱 𝗗𝗲𝘃𝗶𝗮𝘁𝗶𝗼𝗻 (𝘃𝗼𝗹𝗮𝘁𝗶𝗹𝗶𝘁𝘆)
  5. 𝗖𝗼𝗺𝗽𝗼𝘂𝗻𝗱 𝗔𝗻𝗻𝘂𝗮𝗹 𝗚𝗿𝗼𝘄𝘁𝗵 𝗥𝗮𝘁𝗲 — 𝗖𝗔𝗚𝗥
  6. 𝗧𝗵𝗲 𝗽𝗿𝗶𝗰𝗲-𝘁𝗼-𝗲𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗿𝗮𝘁𝗶𝗼 (𝗣/𝗘 𝗿𝗮𝘁𝗶𝗼)
stock market indicators

Hello Dear Investors,

This is the post that I am going to reference in my stock analysis articles so that it explains the terms that I am using.

𝗦𝗵𝗮𝗿𝗽𝗲 𝗥𝗮𝘁𝗶𝗼

The Sharpe ratio is used to help investors understand the return of an investment compared to its risk.

The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.

In simpler words, the ratio is the average return per unit of volatility.

Volatility is a measure of the price fluctuations of an asset or portfolio.

Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.

You can read more here:

https://www.investopedia.com/articles/07/sharpe_ratio.asp

𝗦𝗼𝗿𝘁𝗶𝗻𝗼 𝗥𝗮𝘁𝗶𝗼

The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset’s standard deviation of negative portfolio returns — downside deviation — instead of the total standard deviation of portfolio returns.

The Sortino ratio takes an asset or portfolio’s return and subtracts the risk-free rate, and then divides that amount by the asset’s downside deviation.

You can read more about Sortino Ratio here:

https://www.investopedia.com/terms/s/sortinoratio.asp

𝗠𝗮𝗿𝗸𝗲𝘁 𝗖𝗼𝗿𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻

Correlation is a statistical measure that determines how assets move in relation to each other.

It is measured on a scale of -1 to +1. A perfect positive correlation between two assets has a reading of +1. A perfect negative correlation has a reading of -1.

Modern Portfolio Theory states that adding assets to a diversified portfolio that has low correlations can decrease portfolio risk without sacrificing return.

The thing is that low correlation between assets means there will be positions going up when the others are going down, which reduce the overall portfolio volatility, i.e. risk.

You can read more here:

https://www.investopedia.com/articles/financial-advisors/022516/4-reasons-why-market-correlation-matters.asp

𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱 𝗗𝗲𝘃𝗶𝗮𝘁𝗶𝗼𝗻 (𝘃𝗼𝗹𝗮𝘁𝗶𝗹𝗶𝘁𝘆)

Standard deviation measures the dispersion of a dataset relative to its mean.

A volatile stock has a high standard deviation, while the deviation of a stable blue-chip stock is usually rather low.

As a downside, the standard deviation calculates all uncertainty as risk, even when it’s in the investor’s favor — such as above average returns.

You can read more here:

https://www.investopedia.com/terms/s/standarddeviation.asp

𝗖𝗼𝗺𝗽𝗼𝘂𝗻𝗱 𝗔𝗻𝗻𝘂𝗮𝗹 𝗚𝗿𝗼𝘄𝘁𝗵 𝗥𝗮𝘁𝗲 — 𝗖𝗔𝗚𝗥

This is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year of the investment’s lifespan.

CAGR is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

Investors can compare the CAGR of two alternatives in order to evaluate how well one stock performed against other stocks in a peer group or against a market index.

CAGR does not reflect investment risk.

You can read more here:

https://www.investopedia.com/terms/c/cagr.asp

𝗧𝗵𝗲 𝗽𝗿𝗶𝗰𝗲-𝘁𝗼-𝗲𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗿𝗮𝘁𝗶𝗼 (𝗣/𝗘 𝗿𝗮𝘁𝗶𝗼)

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).

The price-to-earnings ratio or P/E is one of the most widely-used stock analysis tools used by investors and analysts for determining stock valuation. In addition to showing whether a company’s stock price is overvalued or undervalued, the P/E can reveal how a stock’s valuation compares to its industry group or a benchmark like the S&P 500 Index.

You can read more here:

https://www.investopedia.com/terms/p/price-earningsratio.asp

I am using these indicators when selecting the stocks for my portfolio and also to decide when to open or close a trade.

Thanks for reading and feel free to share your thoughts in the comments section.

Link to original article:

https://www.art-invest.net/post/what-s-about-all-these-indicators