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Treynor Ratio
In finance, the Treynor reward-to-volatility model (sometimes called the reward-to-volatility ratio or Treynor measure), named after American economist 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 risk that can be diversified (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 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Finance
Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Administration wich study the planning, organizing, leading, and controlling of an organization's resources to achieve its goals. Based on the scope of financial activities in financial systems, the discipline can be divided into Personal finance, personal, Corporate finance, corporate, and public finance. In these financial systems, assets are bought, sold, or traded as financial instruments, such as Currency, currencies, loans, Bond (finance), bonds, Share (finance), shares, stocks, Option (finance), options, Futures contract, futures, etc. Assets can also be banked, Investment, invested, and Insurance, insured to maximize value and minimize loss. In practice, Financial risk, risks are always present in any financial action and entities. Due ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Jensen's Alpha
In finance, Jensen's alpha (or Jensen's Performance Index, ex-post alpha) is used to determine the abnormal return of a security or portfolio of securities over the theoretical expected return. It is a version of the standard alpha based on a theoretical performance instead of a market index. The security could be any asset, such as stocks, bonds, or derivatives. The theoretical return is predicted by a market model, most commonly the capital asset pricing model (CAPM). The market model uses statistical methods to predict the appropriate risk-adjusted return of an asset. The CAPM for instance uses beta as a multiplier. History Jensen's alpha was first used as a measure in the evaluation of mutual fund managers by Michael Jensen in 1968. The CAPM return is supposed to be 'risk adjusted', which means it takes account of the relative riskiness of the asset. This is based on the concept that riskier assets should have higher expected returns than less risky assets. If an asset's ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Ratios
A financial ratio or accounting ratio states the 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 publicly listed, 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 percentage 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 mor ... [...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 20 ... [...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, pe ... [...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 st ... [...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 Led ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Modigliani Risk-adjusted Performance
Modigliani risk-adjusted performance (also known as M2, M2, Modigliani–Modigliani measure or RAP) is a measure of the risk-adjusted returns of some investment portfolio. It measures the returns of the portfolio, adjusted for the risk of the portfolio relative to that of some benchmark (e.g., the market). We can interpret the measure as the difference between the scaled excess return of our portfolio P and that of the market, where the scaled portfolio has the same volatility as the market. It is derived from the widely used Sharpe ratio, but it has the significant advantage of being in units of percent return (as opposed to the Sharpe ratio – an abstract, dimensionless ratio of limited utility to most investors), which makes it dramatically more intuitive to interpret. History In 1966, William F. Sharpe developed what is now known as the Sharpe ratio. Sharpe originally called it the "reward-to-variability" ratio before it began being called the Sharpe ratio by later aca ... [...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 (finance), 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. The variance of return (or its transformation, the standard deviation) is used as a measure of risk, because it is tractable when assets are combined into portfolios. Often, the historical variance and covariance of returns is used as a proxy for the forward-looking versions of these quantities, but other, more sophisticated methods are available. Economist Harry Markowitz introduced MPT in a 1952 paper, for which he was later awarded a Nobel Memorial ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bias Ratio (finance)
The bias ratio is an indicator used in finance to analyze the returns of investment portfolios, and in performing due diligence. The bias ratio is a concrete metric that detects valuation bias or deliberate price manipulation of portfolio assets by a manager of a hedge fund, mutual fund or similar investment vehicle, without requiring disclosure (transparency) of the actual holdings. This metric measures abnormalities in the distribution of returns that indicate the presence of bias in subjective pricing. The formulation of the Bias Ratio stems from an insight into the behavior of asset managers as they address the expectations of investors with the valuation of assets that determine their performance. The bias ratio measures how far the returns from an investment portfolio – e.g. one managed by a hedge fund – are from an unbiased distribution. Thus the bias ratio of a pure equity index will usually be close to 1. However, if a fund smooths its returns using subjective pric ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Asset Pricing Model
In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a Diversification (finance), well-diversified Portfolio (finance), portfolio. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity Beta (finance), beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical Risk-free bond, risk-free asset. CAPM assumes a particular form of utility functions (in which only first and second Moment (mathematics), moments matter, that is risk is measured by variance, for example a quadratic utility) or alternatively asset returns whose probability distributions are completely described by the first two moments (for example, the normal distribution) and zero transaction costs (necessary for diversifi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
