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The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. [1] It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return , while the Sharpe ratio penalizes both upside and downside volatility equally.
The upside-potential ratio is a measure of a return of an investment asset relative to the minimal acceptable return. The measurement allows a firm or individual to choose investments which have had relatively good upside performance, per unit of downside risk .
The following table shows that this ratio is demonstrably superior to the traditional Sharpe ratio as a means for ranking investment results. The table shows risk-adjusted ratios for several major indexes using both Sortino and Sharpe ratios. The data cover the five years 1992-1996 and are based on monthly total returns.
In this formula P is the sub-portfolio of risky assets at the tangency with the Markowitz bullet, ... Sortino ratio; Treynor ratio; Two-moment decision models;
Roy's ratio is also related to the Sortino ratio, which also uses MAR in the numerator, but uses a different standard deviation (semi/downside deviation) in the denominator. In 1966, William F. Sharpe developed what is now known as the Sharpe ratio. [1]
The idea of a change to the COLA formula has been brought up before. But so far, there's been nothing done to move this shift forward. 2. An updated formula for taxing benefits.
If the drawdown is put in as a positive number, then add 10% and the result is the same positive ratio. [citation needed] To clarify the reason he (Deane Sterling Jones) used 10% in the denominator was to compare any investment with a return stream to a risk-free investment (T-bills). He invented the ratio in 1981 when t-bills were yielding 10%.
Downside risk was first modeled by Roy (1952), who assumed that an investor's goal was to minimize his/her risk. This mean-semivariance, or downside risk, model is also known as “safety-first” technique, and only looks at the lower standard deviations of expected returns which are the potential losses.