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A variation of the Sharpe Ratio that penalizes only downside volatility rather than total volatility.
A variation of the Sharpe Ratio that penalizes only downside volatility rather than total volatility.
The Sortino Ratio improves upon the Sharpe Ratio by replacing total standard deviation with downside deviation (harmful volatility). Upside price spikes are not penalized, making it ideal for asymmetric or option-like strategy evaluation.
Ignores upside volatility, focusing exclusively on loss risk.
Particularly useful for trend-following and long-volatility quantitative strategies.
Higher values indicate greater return generated per unit of dangerous loss risk.
Portfolio optimization is the construction of an asset allocation that maximises risk-adjusted return subject to investor constraints. The classical framework is mean-variance optimisation (Markowitz, 1952); the modern framework is factor-based, with the portfolio constructed to express a target set of factor exposures and to harvest the corresponding risk premia.
Quantitative risk management is the measurement, monitoring, and control of financial risk across a firm. It spans market risk (the risk of losses from price movements), credit risk (the risk of a counterparty defaulting), operational risk (the risk of failures of internal processes, people, and systems), and regulatory risk (the risk of failing to comply with capital and reporting requirements).