Risk ratios put a number on how a fund behaves. The ones you'll see most:
- Standard deviation - how much returns swing around their average. Higher = more volatile.
- Beta - sensitivity to the market. Beta 1 moves with the market; >1 is more aggressive, <1 more defensive.
- Alpha - the excess return a fund delivered over what its risk (beta) would predict. Positive alpha = manager added value.
- Sharpe ratio - return earned per unit of total risk. Higher is better risk-adjusted performance.
- Sortino ratio - like Sharpe but only penalises downside volatility, which is what investors actually fear.
Use them to compare funds within the same category - never in isolation.