Description Usage Arguments Details Author(s) References See Also Examples
Sortino proposed an improvement on the Sharpe Ratio to better account for skill and excess performance by using only downside semivariance as the measure of risk.
1 | SortinoRatio.SE(R, ..., weights = NULL, se.method = "none", MAR = 0)
|
R |
an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns |
... |
any other passthru parameters. This include two types of parameters.
The first type is parameters associated with the risk/performance measure, such as tail
probability for VaR and ES. The second type is the parameters associated with the metohd
used to compute the standard error. See |
weights |
portfolio weighting vector, default NULL |
se.method |
a character string indicating which method should be used to compute
the standard error of the estimated standard deviation. One of |
MAR |
Minimum Acceptable Return, in the same periodicity as your returns |
Sortino contends that risk should be measured in terms of not meeting the investment goal. This gives rise to the notion of “Minimum Acceptable Return” or MAR. All of Sortino's proposed measures include the MAR, and are more sensitive to downside or extreme risks than measures that use volatility(standard deviation of returns) as the measure of risk.
Choosing the MAR carefully is very important, especially when comparing disparate investment choices. If the MAR is too low, it will not adequately capture the risks that concern the investor, and if the MAR is too high, it will unfavorably portray what may otherwise be a sound investment. When comparing multiple investments, some papers recommend using the risk free rate as the MAR. Practitioners may wish to choose one MAR for consistency, several standardized MAR values for reporting a range of scenarios, or a MAR customized to the objective of the investor.
SortinoRatio=\frac{(\overline{R_{a} - MAR})}{δ_{MAR}}
where
δ_{MAR} is the DownsideDeviation
.
@author Xin Chen, chenx26@uw.edu
Sortino, F. and Price, L. Performance Measurement in a Downside Risk Framework. Journal of Investing. Fall 1994, 59-65.
SharpeRatio
DownsideDeviation
SemiVariance
SemiDeviation
InformationRatio
1 2 3 |
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