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

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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.


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