standard deviation of return

问题如下：

Yuen and Ruckey consider a variety of metrics to assess the results of the factor portfolio backtests. Yuen asks Ruckey what can be concluded from the data for three of the factor strategies in Exhibit 1.

Ruckey tells Yuen the following:

• Statement 1: We do not need to consider maximum drawdown, because standard deviation sufficiently characterizes risk.

• Statement 2: Factor 2 has the highest downside risk.

Which of Ruckey’s statements about Exhibit 1 is incorrect?

选项：

A.

Only Statement 1

B.

Only Statement 2

C.

Both Statement 1 and Statement 2

解释：

C is correct. Both statements are incorrect. Statement 1 is incorrect because maximum drawdown and standard deviation are different measures. Maximum drawdown is typically used to represent downside risk, because it is the minimum cumulative return observed. Standard deviation is a measure of volatility.

Although the two measures may be correlated, they are not substitutes for each other. Statement 2 is incorrect because two downside risk measures are presented: VaR and maximum drawdown. Factor Strategy 2 has the lowest reading for both measures, indicating that it has the least downside risk among the three strategies presented in Exhibit 1.