Loading
The probability-weighted ratio of gains above a threshold to losses below it.
The probability-weighted ratio of gains above a threshold to losses below it.
Introduced by Con Keating and William Shadwick in 2002, the Omega Ratio captures the entire return distribution rather than relying solely on mean and variance. For a chosen threshold r, Omega equals the integral of (1 - F(x)) above r divided by the integral of F(x) below r, making it robust to skew and kurtosis.
Generalizes the Sharpe Ratio to non-normal return distributions.
Threshold r is typically the acceptable minimum return or funding cost.
Increasing function of the threshold; the Omega curve itself is informative.