The formula to calculate the Modigliani Ratio (MR) is:
\[ \text{MR} = \frac{\text{AER}}{\text{SD}} \]
Where:
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.
Let's assume the following values:
Using the formula to calculate the Modigliani Ratio:
\[ \text{MR} = \frac{5}{2} = 2.5 \]
The Modigliani Ratio is 2.5.
