Modigliani Ratio Calculator

Formula

The formula to calculate the Modigliani Ratio (MR) is:

\[ \text{MR} = \frac{\text{AER}}{\text{SD}} \]

Where:

$ \text{MR} $ is the Modigliani Ratio
$ \text{AER} $ is the average excess returns over the period ($)
$ \text{SD} $ is the standard deviation of the returns

What is the Modigliani Ratio?

The Modigliani Ratio (MR), also known as the M2 Ratio, is a measure of risk-adjusted returns that adjusts the excess return of a portfolio to the level of risk of a benchmark. It is calculated by dividing the average excess returns of the portfolio by the standard deviation of those returns. This ratio provides a clear comparison of the performance of different portfolios or investments by considering both return and risk.

Example Calculation

Let's assume the following values:

Average Excess Returns (AER) = $5
Standard Deviation of Returns (SD) = 2

Using the formula to calculate the Modigliani Ratio:

\[ \text{MR} = \frac{5}{2} = 2.5 \]

The Modigliani Ratio is 2.5.