The down-market capture ratio is a ratio that measures how well an investment performs compared to its benchmark during periods when the market is declining. The down-market capture ratio is calculated by dividing the investment's return by the benchmark's return during periods when the market is down.
For example, if an investment has a down-market capture ratio of 0.8, it means that the investment lost 20% less than the benchmark during periods when the market was down.
The down-market capture ratio is a useful metric for assessing an investment's risk-adjusted return. A higher down-market capture ratio indicates that the investment outperformed its benchmark during periods of market decline, which means that it lost less money than the benchmark during those periods. This may be due to the investment having a lower beta, or being less volatile than the benchmark.
The down-market capture ratio is not a perfect metric, however. It doesn't take into account the magnitude of the market decline, so an investment with a high down-market capture ratio could still lose a lot of money during a market crash. It also doesn't take into account the investment's performance during periods when the market is rising.
Despite these shortcomings, the down-market capture ratio is a valuable tool for investors who want to assess an investment's risk-adjusted return. What is market capture rate? The market capture rate is a ratio that measures the percentage of a market that a company captures. To calculate the market capture rate, divide the company's market share by the total market size. For example, if a company has a market share of 20% and the total market size is $100 million, the market capture rate would be 20%.
The market capture rate is a useful tool for companies to assess their position in the market and to set goals for market share growth. A high market capture rate indicates that a company is doing a good job of capturing the market, while a low market capture rate indicates that the company could improve its market share. Is a lower down capture ratio better? There is no definitive answer to this question as it depends on the specific circumstances of the company in question. A lower down capture ratio may be indicative of a company that is more conservative in its lending practices, which could be seen as a positive thing by some investors. On the other hand, a lower down capture ratio could also be indicative of a company that is struggling to grow its loan portfolio, which could be seen as a negative thing by some investors. Ultimately, it is up to the individual investor to decide whether a lower down capture ratio is a good or bad thing. How is downside deviation calculated? Downside deviation is a risk measure that quantifies the amount of downside risk in a portfolio or security. It is calculated as the standard deviation of returns that are below a certain threshold, typically the asset's minimum acceptable return.
The threshold can be set by the investor or it can be based on market conditions, such as the prevailing interest rate. For example, if the minimum acceptable return is 5% and the asset's return over the past year has been 10%, the downside deviation would be zero. However, if the asset's return over the past year has been -5%, the downside deviation would be 5%.
Downside deviation is a useful risk measure because it captures the risk of a security or portfolio falling below a certain level, which is often the biggest concern for investors. It is also a good complement to traditional measures of risk, such as standard deviation, which can be skewed by positive returns.
What is Sortino ratio with example? The Sortino ratio is a risk-adjusted performance measure that was developed by Frank Sortino. The ratio is similar to the Sharpe ratio, but it is more targeted towards Downside Deviation, which is a measure of downside risk.
The Sortino ratio is calculated as follows:
Sortino Ratio = (Average Return - Target Return) / Downside Deviation
Where:
Average Return = The mean return of the investment
Target Return = The desired return of the investment
Downside Deviation = The standard deviation of the returns below the target return
For example, let's say you have an investment with an average return of 10% and a downside deviation of 5%. The desired return (or target return) is 8%. The Sortino ratio would be calculated as follows:
Sortino Ratio = (10% - 8%) / 5% = 0.4
This means that the investment has a risk-adjusted return that is 0.4% higher than the desired return.
It's important to note that the Sortino ratio can be negative if the average return is below the target return.
The Sortino ratio is a useful tool for investors because it allows them to see how much risk is associated with a potential return. It is also helpful for comparing investments with different levels of risk. What is financial information ratio? A financial information ratio is a ratio used to analyze a company's financial statements. This ratio can be used to compare a company's financial statements to industry averages or to other companies' financial statements.