Omega by Marc Odo, CFA, CAIA, CFP

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Wed, 2011-05-11

With the release of StyleADVISOR 8.1, Zephyr Associates has expanded the toolset used to understand the Omega ratio. Omega captures all four moments of a distribution: return, standard deviation, skewness, and kurtosis. In addition, Omega can be used to help understand any series of return data, whereas some of the traditional return/risk statistics used in finance are only useful if the returns happen to fall into a somewhat normal distribution pattern. Therefore, Omega is a useful metric when looking at absolute-return strategies or strategies that are not pegged to a market benchmark. When Omega is coupled with a cumulative distribution of returns chart, the two can offer insights into the tail-risk of an investment. Finally, Omega is quite valuable when analyzing a total portfolio’s suitability for meeting a target return.

 
 

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