The formula for calculating the Sortino ratio is as follows. Sortino Ratio = (rp – rf) ÷σd Where: rp = Portfolio Return rf = Risk-Free Rate σd = Downside Deviation While the portfolio return could be calculated on a forward basis, most investors and academics place more weight on ac...
Based on the historical drawdown to date, a firm can adjust their investment strategy to reduce the downside risk potential of its portfolio going forward. However, the MDD of the portfolio being analyzed is more meaningful for portfolios with long standing performance data. ...
Formula for Calculating the Information Ratio The information ratio is calculated using the formula below: Where: Ri– the return of a security or portfolio Rb– the return of a benchmark E( Ri– Rb)– the expected excess return of a security or portfolio over benchmark δib– the standard...
By regularly monitoring the CEI, businesses can ensure they are maximizing their collections efficiency, reducing the risk of bad debts, and maintaining healthy financial stability. Formula for Calculating Collection Effectiveness Index Collection effectiveness index is calculated by dividing the beginning AR...
The alpha calculation formula can be used first by calculating the expected rate of return of the portfolio based on the risk-free rate of return, a beta of the portfolio, and market risk premium, then deducting the result from the actual rate of return of the portfolio. Alpha of portfolio...
Example 1: Calculating the Portfolio Turnover Ratio A fund purchased and sold $10 million and $8 million of securities, respectively, over a one-year time period. Over the one-year period, the fund held average net assets of $50 million. What is the fund’s portfolio turnover ra...
R-squared, also known as the coefficient of determination, is the statistical measurement of the correlation between an investment’s performance and a specific benchmark index. In other words, it shows what degree a stock or portfolio’s performance can
different assets or securities being impacted by similar market conditions. However, risk-seeking investors or investors wanting to put their money into a very specific type of sector or company may be willing to have higher correlation within their portfolio in exchange for greater potential returns...
Understanding portfolio variance is crucial for optimizing your investment strategy and managing risk effectively. By calculating portfolio variance, you gain insights into how different assets interact within your portfolio and how these interactions impact overall performance. Armed with this knowledge, you...
Formula for Calculating Opportunity Cost We can express opportunity cost in terms of a return (or profit) on investment by using the following mathematical formula: Opportunity Cost=RMPIC−RICPwhere:RMPIC=Return on most profitable investment choiceRICP=Return on investment chosen to pursueOpport...