Many mutual funds compare their performance with that of a benchmark

| November 19, 2015

Many mutual funds compare their performance with that of a benchmark, an index of the returns on all securities of the kind that the fund buys. The Vanguard International Growth Fund, for example, takes as its benchmark the Morgan Stanley Europe, Australasia, Far East (EAFE) index of overseas stock market performance. Here are the percent returns for the funds and for the EAFE from 1982 (the first full year of the fund’s existence) to 2000:

 

Year Fund EAFE Year Fund EAFE
1982 5.27 -0.86 1992 -5.79 -11.85
1983 43.08 24.61 1993 44.74 32.94
1984 -1.02 7.86 1994 0.76 8.06
1985 56.94 56.72 1995 14.89 11.55
1986 56.71 69.94 1996 14.65 6.36
1987 12.48 24.93 1997 4.12 2.06
1988 11.61 28.59 1998 16.93 20.33
1989 24.76 10.8 1999 26.34 27.3
1990 -12.05 -23.2 2000 -8.6 -13.96
1991 4.74 12.5

 

Make a scatterplot suitable for predicting fund returns from EAFE returns. Is there a clear straight-line pattern? How strong is this pattern? (Give a numerical measure.) Are there any extreme outliers from the straight-line pattern?

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