Pain Ratio

Pain Index vs. Pain Ratio

2013-02-12 02:22:33
Marc Odo
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Although people have found Zephyr’s pain index and pain ratio to be very useful in their understanding of capital preservation risk, there remains some confusion between the two.  Hopefully this blog post will clear up any lingering ambiguity.

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Pain Index, Pain Ratio

Hedge Fund Performance Template

2013-01-04 08:42:25
Marc Odo
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We’ve recently created a nice little five-pager that is meant to be used with hedge funds and other absolute-return strategies. The template was created with our new report view feature and utilizes many of the new statistics and graphics available in StyleADVISOR.

Fixed Income and StyleADVISOR

2012-11-05 12:46:41
Marc Odo
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The question is often asked how to best analyze fixed income products using StyleADVISOR. First and foremost, it is worth noting that all of the return analytics - the benchmark comparisons, the modern portfolio theory statistics, the universe comparisons, etc. - are every bit as relevant when looking at fixed income strategies as they are with equity products. The question then becomes, “Of all the analytics StyleADVISOR offers, which is the most relevant to fixed income?”

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Pain Index, Pain Ratio

Pain Index and Pain Ratio by Marc Odo CFA, CAIA, CFP

Date: 
Fri, 2011-04-08

In July of 2006, Zephyr Associates unveiled a new risk metric called the “pain index”. The pain index is meant to quantify the capital preservation characteristics of a fund, manager, index, or any other data series. In short, the pain index measures the 1) depth, 2) duration, and 3) frequency of losses experienced by a manager. Once established, the pain index can be utilized in a return vs. risk trade-off metric. The “pain ratio” compares the returns versus the loss characteristics using a well-known format.

Pain Ratio

 The pain ratio is the analogue to the Sharpe Ratio, with the pain index used instead of the standard deviation:

    Pain Ratio = (AnnRtn(r1,...,rn) - AnnRtn(c1,...,cn)) / PainIndex(r1,...,rn)

where:

    r1,...,rn = manager return series
    c1,...,cn = cash equivalent return series

 
 

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