In Mathematics, the mean or average return is defined as the average of all the given values. To find the mean, the added sum of all the given values is divided by the total number of values given.Standard deviation (SD), on the other hand, is a measure of the dispersion of the data points from the mean. Standard deviation, therefore, shows how far the data points are spread out from the average value. SD measures the absolute variability of the data distribution.Note − SD is the most popular measure of variability and is used often to determine the volatility of ... Read More

The Constant Growth Model is a way of share evaluation. Also known as Gordon Growth Model, it assumes that the dividends paid by the company will continue to go up at a constant growth rate indefinitely. It helps investors determine the fair price to pay for a stock today based on future dividend payments.For a company paying out a steadily rising dividend, one can estimate the fair value of the stock with a formula that considers that constantly increasing payout is responsible for the stock's value. The formula is, $$\mathrm{𝑃 =\frac{𝐷}{(𝑟 − 𝑔)}}$$Where, P is the current share price, D ... Read More

Valuation of SharesValuation of a share means finding the fair value of the share being considered. It is a process of understanding the value of a company’s shares. It indicates whether a share is overvalued or undervalued. The valuation is based on market supply and demand and is based on quantitative measures.The value of shares of listed companies is easy to get. However, the companies that are not listed need to be carefully reviewed before judging their fair value.When is the valuation of shares required?Valuation of shares is needed when one is buying or selling a business and wants to ... Read More

Geometric Mean ReturnThe geometric mean return, also called the geometric average return, is a way to calculate the average compounding rate of return on the investments. It considers the compound interests multiplied by the interest over the number of periods.The geometric mean return is a good measure above the arithmetic return that calculates the interests in a simple arithmetic measure. In case of arithmetic returns, all interests of sub-periods are added and then the total is divided by the total number of sub-periods. The arithmetic average return is misleading in case of long-tenured investments because it overstates the true return. ... Read More

Holding Period Return (HPR) is the return received during the holding period of a portfolio of assets or individual assets. The holding period is the period of time when the stock is kept in one’s possession; that is, it is the time from buying an asset till it gets sold in the market.The HPR is the total market return received from holding a set of assets or a singular asset over a given period. It is usually expressed as a percentage value. The HPR is calculated from the total returns of either the set of assets or the portfolio. The ... Read More

The standard deviation (SD) of a dataset is its average amount of variability. It indicates how far each of the data values in a given distribution deviate from the mean, or center, of the distribution. In the case of normal distributions, a larger standard deviation means that the given values are generally far from the mean, while a smaller standard deviation indicates the values are clustered closer to the mean.Variance is the average of the squared SDs from the mean. To count variance, one needs to first subtract the mean from each number and then square the outcomes to find ... Read More

Portfolio Return refers to the loss or gains realized by a portfolio of investment containing several types of investments. Portfolio Return aims to meet the preferred benchmarks, meaning a well-diversified portfolio of stock/bond holdings or a given mix of the two asset classes. Portfolios aim to deliver returns based on the promised investment strategy objectives, and the risk tolerance.Investors typically are interested in one or more sets of portfolios and their aim is to get a balanced return back over time. Many types of portfolios are available to investors right from equities, debt to Balanced Fund consisting of a mix ... Read More

The Dividend Discount Model or the Gordon Growth Model is a share valuation method that determines a stock’s intrinsic value. This method does not consider the current market conditions. Investors can compare companies against each other using this simple model. Dividend discount model is called "perpetual growth model" because the dividends are usually paid till infinity.Assumptions for Gordon Growth ModelThe Gordon Growth Model considers the following conditions −The company has a stable business model, i.e., there are will be no significant changes in its operations in future.The company will have a stable financial leverage.The company’s growth is constant and unchanging.The ... Read More

Capitalized Dividends are dividends due on the Preferred Shares which are capitalized by adding them to the Stated price of the Preferred Shares.As most closely held companies do not pay dividends, to determine dividend capitalization, the evaluators must first find out the dividend paying capacity of the business. The Dividend paying capability of a company is based on the average net income and the average cash flow. To calculate dividend paying capacity, debt repayment, expansion plans, operation cushion, dividend paying history of a business contractual requirements, past and dividends of a comparable company should be analyzed, among others.After analyzing the ... Read More

Correlation is a term that is a measure of the power of a linear relationship within two quantitative variables (e.g., height, weight). There are mainly two types of correlation depending on the movement of the variables −Positive correlation – In a Positive correlation of two variables, both the variables move in the same direction. This means when the value of one variable goes up, the other also increases and vice versa. For example, the more fuel you burn, the more distance you can travel with an automobile.Negative correlation – In case of negative correlation, when one variable increases the other ... Read More