Understanding the Zephyr K-Ratio by Marc Odo CFA, CAIA, CFP

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Thu, 2012-02-02

In 1996, Lars Kestner drafted the Kestner Ratio, or K-Ratio, as a way to quantify the profit and loss trade-off in his technical trading strategies. Zephyr Associates saw the K-Ratio’s potential for analyzing investment products and, with a few tweaks, incorporated the metric in StyleADVISOR. In a previous paper Dr. Thomas Becker, Zephyr’s head mathematician, explained the history and evolution of the metric, the mathematical foundations of the Zephyr K-Ratio, and gave some illustrations using theoretical data. This paper is designed to further your understanding of the Zephyr K-Ratio by using real world data for various asset classes and put together some illustrations to give you a contextual understanding of the Zephyr K-Ratio.


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