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1 Active Manager
A manager who seeks better than benchmark reward and risk characteristics through asset selection and the timing of asset purchases and sales. Also known as a tactical manager.
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2 Active Premium
The index return minus the benchmark return; a measure of active manager skill.
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3 Annualize
Convert monthly period rates or statistics values to equivalent annual rates or values. Many statistics lose their statistical validity when there are too few annual data points. In these cases, statistics are annualized multiplying the monthly value times the square root of 12.
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4 Average Gain
The average gain of up periods.
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5 Average Loss
The average loss of down periods.
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6 Average Return
The average of period returns (gains and losses ) in dollars or percentage.
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7 Average RoR
Average Rate of Return. The average of period returns (gains or losses) expressed in percentage.
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8 Compound Return
The final index or benchmark return (gain or loss) when period rates of return (RoR) are compounded rather than arithmetically summed. Compounding formula: (( 1 + Period 1 RoR ) * ( 1 + Period 2 RoR ) ……..* ( 1 + Last Period RoR ) - 1 ) * beginning asset value = final value of return.
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9 Compound RoR
Compound Rate of Return. The percentage rate that when compounded over the same number of periods, achieves the same final value of return (gain or loss) as the index or benchmark. Compounding formula: ((( 1 + Compound RoR ) ^ Number of Periods ) - 1) * beginning asset value = final value of return
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10 Down Capture Ratio
The ratio of the compound index return from periods when the benchmark is down to the compound benchmark return using the same periods.
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11 Down Market
Periods when the benchmark is down.
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12 Downside Deviation
Similar to Loss Deviation, but calculates the deviation using down period variances relative to a benchmark with averages calculated using the total number of periods, not just down periods. Commonly the benchmark is the the minimum acceptable rate of return. It is the denominator in the Sortino ratio.
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13 Drawdown
Percent reduction in value from the highest previous high.
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14 Gain Deviation
Similar calculation to standard deviation, but calculates the deviation using only up period returns, variances and the mumber of up periods.
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15 Gain/Loss Ratio
The ratio of the average of winning months gains to the average of losing months losses.
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16 Information Ratio
A risk adjusted meaure of active manager skill. It is the ratio of the index rate of return (actively managed return) to the benchmark rate of return, divided by the standard deviation of the index return.
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17 Kurtosis
Compares the height and sharpness of the peak of the distribution of returns to a normal distribution. Normal distribution has a kurtosis of 3. Higher kurtosis indicates the distribution is from fewer, more extreme period returns than a normal distribution. Lower kurtosis indicates the distribution is from a greater number of more modest returns than a normal distribution.
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18 Loss Deviation
Similar calculation to standard deviation, but calculates the deviation using only the down period returns, variances and the number of down periods.
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19 MAR Ratio
The ratio of the Compound Annual ROR % to the absolute value of the Maximum Drawdown % since the beginning of the analysis period.
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20 MAX Drawdown
The maximum percent reduction in value from the highest previous high for all drawdown periods.
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21 Max Gain
The highest percent gain in any single period.
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22 Minimum Acceptable Return
Minimum Acceptable Rate of Return. Used in calculation of Sortino ratio and Omega ratio. ProfitScore Indexes shows the rate used where the ratio data is presented.
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23 Omega Ratio
The ratio of the probabilities of having a rate of return above or below a minimum acceptable return. An Omega Ratio of 1 means that there is an equal probability of a return greater or less than the minimum acceptable return. Ratios higher than one indicate a higher probability of gains than losses.
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24 Outperformance
Performance relative to a benchmark. Higher than benchmark is Outperformance. Lower is Underperformance.
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25 Profit to Loss Ratio
The ratio of the arithmetic sum of period gains to the arithmetic sum of the absolute value of period losses. Also known as Profit Factor.
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26 Rate of Return (RoR)
Period Gain or Loss expressed as a percent of the period beginning value.
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27 Return
Gain or loss expressed in dollars or percent.
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28 Risk-Free Rate
The rate of return that can be achieved with no risk of loss. Used in the calculation of Sharpe Ratio. ProfitScore Indexes show the rate used where the ratio data is presented.
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29 Semi Deviation
Same as Loss or Gain Deviation depending on whether variances above or below the mean are used in the calculation. (The number of different definitions used in the financial industry is noteworthy.)
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30 Sharpe Ratio
A risk adjusted measure of performance above a risk free investment. It is the average return minus the risk-free rate divided by the standard deviation of returns.
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31 Skewness
A measure of the offset of the distribution of returns from a normal distribution. A normal distribution has zero skewness. Positive skewness indicates distribution of returns higher than a normal distribution (right on a chart). Negative skewness indicates distribution of returns lower than a normal distribution (left on a chart).
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32 Sortino Ratio
A risk adjusted measure of performance above a minimum acceptible return. Calculated as the compound RoR minus the minimum acceptable RoR, divided by the downside deviation. Sortino ratio differs in concept from Sharpe ratio since it penalizes an investment only for volatility of losses (downside deviation), rather than the volatility of all returns (standard deviation). It uses compound RoR while Sharpe ratio uses average RoR.
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33 Standard Deviation
A measure of the dispersion or variation of the period returns from the average of period returns. Calculated as the square root of: the average of: the squares of individual period variences from average returns.
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34 Total Return
The total value of gains or losses expressed in dollars or percent.
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35 Underperformance
Performance relative to a benchmark. Lower than benchmark is Underperformance. Higher is Outperformance.
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36 Up Capture Ratio
The ratio of the compound index return from periods when the benchmark is up to the compound benchmark return using the same periods.
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37 Up Market
Periods when the Benchmark is up.
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38 Upside Deviation
Similar to Gain Deviation, but calculates the up deviation using up period variances relative to a benchmark with averages calculated using the total number of periods, not just up periods. Commonly the benchmark is the the minimum acceptable rate of return.
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39 VAMI
Value Added Monthly Index - A $1000 investment, grown by compounding monthly rates of return.
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40 Worst Loss
The highest percent loss in any single period.