What is M2 ratio?

The output of the M2 measure is expressed in percentage return, making it easy to understand and compare across different investments. This format allows investors to quickly grasp the risk-adjusted performance of their portfolios and make informed decisions accordingly.

The Modigliani-Modigliani measure, commonly referred to as the M2 measure, serves as a pivotal tool in assessing the risk-adjusted return of an investment. This metric enables investors to comprehend the performance of their investments in relation to the inherent risks involved, when benchmarked against a predefined standard.

The essence of the M2 measure lies in its ability to quantify the return on investment while factoring in the associated risks. By adjusting the raw return for the level of risk undertaken, it provides a more nuanced view of an investment's profitability.

The comparison with a benchmark is crucial in this analysis, as it serves as a yardstick for evaluating the investment's performance. This benchmark can be a market index, a peer group, or any other relevant comparison point, depending on the investment's nature and objectives.

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