What is the ratio of omega?

Omega ratio is a way to measure the performance of financial assets based on the level of revenue offering in exchange for the risk of investing in them. It is the ratio of weighted profits to weighted losses - a ratio that contains information about the probability of each revenue level. Unlike its predecessors, the Omega ratio varies according to the shape of the asset yields. This allows investors to distinguish between assets with different risk profiles. Economic analysts invented the ways of assessing assets in these conditions to provide investors with information on which assets provide the best revenues for the level of risk they represent. One of the most commonly used measures for reporting is the ratio of Sharpe, which is the ratio of the average return of the minus without risk, which is usually a return on cash register bonds, to the degree of Thvolatility E of the assets, which is found by revenue scattering.

Although the Sharpe ratio withCommonly used to evaluate the performance of the asset, has significant shortcomings. The measurement is based on the diameter and scattering of asset revenues, which tells the investor of the actual performance of the asset. Many revenue distributions can have the same diameter and scattering, but completely different shapes, which means that they have different probabilities for any return. The actual shape of the distribution is important to the investor because it tells him the probability of different levels of return, which gives him a better idea of ​​the risk he is exposed to.

Omega ratio is an alternative measure of assets that provides the investor's information on the Sharpe ratio. It involves the entire revenue distribution without loading the tanials with difficult calculations. Con Keating, a fund manager with experience as a financial analyst, and William F. Shadwick, a mathematician, proposed measurements in 2002.

To calculate the OMEGA ratio, the analyst must know the distribution function of asset revenues. The analyst chooses the threshold value of the loss for which the asset can be evaluated. Calculates an area betweenhorizontal line on one and distribution function or area above the curve for returns over the threshold. It then calculates the area under the curve and above zero for returns below the threshold. The Omega ratio is the first number divided by the second.