facebookIs there a form of risk-adjusted return that investors can look at to compare between different P2P investments? (Something like Sharpe Ratio that kind)? - Seedly
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Isaac Chan

Isaac Chan

Level 11ยทBusiness at NUS

22 Nov 2019

Is there a form of risk-adjusted return that investors can look at to compare between different P2P investments? (Something like Sharpe Ratio that kind)?

Is there a form of risk-adjusted return that investors can look at to compare between different P2P investments? (Something like Sharpe Ratio that kind)?

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    Discussion (7)

    What are your thoughts?

    Chong Ser Jing

    Chong Ser Jing

    24 Oct 2019

    Level 7ยทFormer Writer/Analyst at The Motley Fool Singapore

    Interesting question! Would love to hear opinions too. But if you're mentioning P2P investments in the context P2P lending, then I would base the risk component on the credit worthiness of the borrower.
    The Sharpe ratio uses volatility as a measure of risk (I personally think volatility is a flawed measure, but that's another story for another day!). But in P2P lending as an investment, you'll earn money if your interest is paid and your loan is repaid. So I think the best way to look at risk-adjusted return for P2P lending-investments will be for P2P lending platforms to release some form of the scoring system on credit-worthiness (volatility of income, interest coverage ratio, debt-to-equity ratio etc.).
    I'm not familiar with P2P investment platforms, so I hope this is a useful response!

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      Alex Chua

      Alex Chua

      22 Nov 2019

      Level 9ยทSeedly student Ambassador 2020/21 at Seedly

      There is no formulated martrix for p2p investments yet. Maybe a kind soul can start to create one.

      In my opinion, for platforms you can take compare:

      1)annualised Rate of returns VS default rate

      2) Rise of funds issued vs % of successful repayment - More loans issued = more loans Choice = more room for diversification

      3) Credit scoring system (FACTSHEET)

      As for individual loans, you can look at ,

      1) Cash Flow

      2) Leverage ratio/ cash ratio

      3) Equities - Liabiliities Ratio (my personal preference) / Current ratio

      4) trends of net profit/ gross profit

      5) Simple interest Rate it is closely related to the platform credit scoring system. Technically, the higher the interest rate, the higher the risk.

      P.S google the terminology or refer to Brian post

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        Hi Issac,

        In my opinion, here are some statistics that you could use to compare across different b...

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