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Information Ratio
The information ratio measures and compares the active return of an investment (e.g., a security or portfolio) compared to a benchmark index relative to the volatility of the active return (also known as active risk or benchmark tracking risk). It is defined as the active return (the difference between the returns of the investment and the returns of the benchmark) divided by the tracking error (the standard deviation of the active return, i.e., the additional risk). It represents the additional amount of return that an investor receives per unit of increase in risk. The information ratio is simply the ratio of the active return of the portfolio divided by the tracking error of its return, with both components measured relative to the performance of the agreed-on benchmark. It is often used to gauge the skill of managers of mutual funds, hedge funds, etc. It measures the active return of the manager's portfolio divided by the amount of risk that the manager takes relative to the be ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Active Return
In finance, active return refers the returns produced by an investment portfolio due to active management decisions made by the portfolio manager that cannot be explained by the portfolio's exposure to returns or to risks in the portfolio's investment benchmark; active return is usually the objective of active management and subject of performance attribution. In contrast, passive returns refers to returns produced by an investment portfolio due to its exposure to returns of its benchmark. Passive returns can be obtained deliberately through passive tracking of the portfolio benchmark or obtained inadvertently through an investment process unrelated to tracking the index. Benchmark portfolios are often represented in theoretical contexts to include all investment assets - sometimes called a market portfolio in these contexts, but is in practice a subset of practically available investable assets. In those cases where the benchmark or the market portfolio include all investable asse ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Geometric Mean
In mathematics, the geometric mean is a mean or average which indicates a central tendency of a set of numbers by using the product of their values (as opposed to the arithmetic mean which uses their sum). The geometric mean is defined as the th root of the product of numbers, i.e., for a set of numbers , the geometric mean is defined as :\left(\prod_^n a_i\right)^\frac = \sqrt /math> or, equivalently, as the arithmetic mean in logscale: :\exp For instance, the geometric mean of two numbers, say 2 and 8, is just the square root of their product, that is, \sqrt = 4. As another example, the geometric mean of the three numbers 4, 1, and 1/32 is the cube root of their product (1/8), which is 1/2, that is, \sqrt = 1/2. The geometric mean applies only to positive numbers. The geometric mean is often used for a set of numbers whose values are meant to be multiplied together or are exponential in nature, such as a set of growth figures: values of the human population or inter ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Ratios
A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios. Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
V2 Ratio
The V2 ratio (V2R) is a measure of excess return per unit of exposure to loss of an investment asset, portfolio or strategy, compared to a given benchmark. The goal of the V2 ratio is to improve on existing and popular measures of risk-adjusted return, such as the Sharpe ratio, information ratio or Sterling ratio by taking into account the psychological impact of investment performances. The V2 ratio over-penalizes investments for which the investors had to go through bad returns comparatively to the market. The V2R is calculated as: V^2_R = \frac where V_i is the ratio between the investment and the benchmark values at time i (and V_0,V_n the initial and final values respectively), V_i^p the peak value ratio reached at time i, n the number of periods and P the number of identical periods in a year. History The V2 ratio was created by Emmanuel Marot of quantitative trading company Zenvestment (previously 'Valu Valu', hence the 'V2' in the V2 Ratio) and first published in 2 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Upside Potential Ratio
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. : U = = \frac, where the returns R_r have been put into increasing order. Here P_r is the probability of the return R_r and R_\min which occurs at r=\min is the minimal acceptable return. In the secondary formula (X)_+ = \beginX &\textX \geq 0\\ 0 &\text\end and (X)_- = (-X)_+. The upside-potential ratio may also be expressed as a ratio of partial moments since \mathbb R_r - R_\min)_+/math> is the first upper moment and \mathbb R_r - R_\min)_-^2/math> is the second lower partial moment. The measure was developed by Frank A. Sortino. Discussion The upside-potential ratio is a measure of risk-adjusted returns. All such measures are dependent on some measure of risk. In practice, standard deviation is often used, p ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Treynor Ratio
The Treynor reward to volatility model (sometimes called the reward-to-volatility ratio or Treynor measure), named after Jack L. Treynor, is a measurement of the returns earned in excess of that which could have been earned on an investment that has no diversifiable risk (e.g., Treasury bills or a completely diversified portfolio), per unit of market risk assumed. The Treynor ratio relates excess return over the risk-free rate to the additional risk taken; however, systematic risk is used instead of total risk. The higher the Treynor ratio, the better the performance of the portfolio under analysis. Formula :T = \frac where: :T \equiv Treynor ratio, :r_i \equiv portfolio ''is return, :r_f \equiv risk free rate :\beta_i \equiv portfolio ''is beta Example Taking the equation detailed above, let us assume that the expected portfolio return is 20%, the risk free rate is 5%, and the beta of the portfolio is 1.5. Substituting these values, we get the following :T = \frac ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Sterling Ratio
The Sterling ratio (SR) is a measure of the risk-adjusted return of an investment portfolio. While multiple definitions of the Sterling ratio exist, it measures return over average drawdown, versus the more commonly used max drawdown. While the max drawdown looks back over the entire period and takes the worst point along that equity curve, a quick change of the look back allows one to see what the worst peak to valley loss was for each calendar year as well. From there, the drawdowns of each year are averaged to come up with an average annual drawdown. The original definition was most likely suggested by Deane Sterling Jones (a company no longer in existence): :SR=\frac If the drawdown is put in as a negative number, then subtract the 10%, and then multiply the whole thing by a negative to result in a positive ratio. If the drawdown is put in as a positive number, then add 10% and the result is the same positive ratio. To clarify the reason he (Deane Sterling Jones) used 10% in ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Sortino Ratio
The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. 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. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk. Definition The ratio S is calculated as : S = \frac , where R is the asset or portfolio average realized return, T is the target or required rate of return for the investment strate ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Omega Ratio
The Omega ratio is a risk-return performance measure of an investment asset, portfolio, or strategy. It was devised by Con Keating and William F. Shadwick in 2002 and is defined as the probability weighted ratio of gains versus losses for some threshold return target. The ratio is an alternative for the widely used Sharpe ratio and is based on information the Sharpe ratio discards. Omega is calculated by creating a partition in the cumulative return distribution in order to create an area of losses and an area for gains relative to this threshold. The ratio is calculated as: : \Omega(\theta) = \frac, where F is the cumulative probability distribution function of the returns and \theta is the target return threshold defining what is considered a gain versus a loss. A larger ratio indicates that the asset provides more gains relative to losses for some threshold \theta and so would be preferred by an investor. When \theta is set to zero the gain-loss-ratio by Bernardo and Ledoi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Modern Portfolio Theory
Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversification in investing, the idea that owning different kinds of financial assets is less risky than owning only one type. Its key insight is that an asset's risk and return should not be assessed by itself, but by how it contributes to a portfolio's overall risk and return. It uses the variance of asset prices as a proxy for risk. Economist Harry Markowitz introduced MPT in a 1952 essay, for which he was later awarded a Nobel Memorial Prize in Economic Sciences; see Markowitz model. Mathematical model Risk and expected return MPT assumes that investors are risk averse, meaning that given two portfolios that offer the same expected return, investors will prefer the less risky one. Thus, an investor will take on increased risk only if compensat ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Information Coefficient
The information coefficient (IC) is a measure of the merit of a predicted value. In finance, the information coefficient is used as a performance metric for the predictive skill of a financial analyst. The information coefficient is close to correlation in that it can be seen to measure the linear relationship between two random variables, e.g. predicted stock returns Return may refer to: In business, economics, and finance * Return on investment (ROI), the financial gain after an expense. * Rate of return, the financial term for the profit or loss derived from an investment * Tax return, a blank document or t ... and the actualized returns. The information coefficient ranges from -1 to 1, with 0 denoting no linear relationship between predictions and actual values (poor forecasting skills) and 1 denoting a perfect linear relationship (good forecasting skills). Similarly, -1 reflects a negative linear relationship, i.e. the analyst always fails to make an accurate prediction ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
