K-Ratio
K-Ratio
The Zephyr K-Ratio quantifies two things: the appreciation of wealth and the consistency of that wealth creation.
Like many statistical ratios, the K-Ratio is a return-vs.-risk tradeoff metric, with the numerator being an expression of return and the denominator a measure of risk. The numerator, the measure of return, is the slope of a best-fit regression line superimposed over a cumulative return series. The steeper the slope, the larger the number, the faster the rate of appreciation of wealth.
The Zephyr K-Ratio by Thomas Becker, Ph.D.
In 1996, Lars Kestner introduced the K-Ratio as a complement to the Sharpe Ratio. With Version 8.1, Zephyr Associates makes the K-Ratio available to StyleADVISOR users. This article explains the use, the meaning, and the exact mathematical definition of the ratio.