Blog Posts

The Upside Potential Ratio is a financial metric used to evaluate the performance of an investment relative to its risk, with a specific focus on the upside, or positive return, potential. This ratio is particularly useful in assessing investments where the concern is not just the volatility, but the nature of the volatility – emphasizing […]

The Bias Ratio is a relatively lesser-known risk-adjusted performance metric. It is designed to quantify and understand the skewness and kurtosis (shape characteristics) of the distribution of investment returns. Essentially, the Bias Ratio helps in identifying whether the returns of a portfolio or asset are normally distributed or if they exhibit a bias due to […]

What Is Multicollinearity? Multicollinearity occurs when two or more predictor variables in a regression model are highly correlated. This correlation can cause problems with model estimation and interpretation. When multicollinearity is present, the coefficient estimates for the individual predictors can be very sensitive to small changes in the data. This means that the estimates may […]

Below we look at how to install Python in R Studio. For those who like using both R and Python and enjoy using R Studio as an IDE, this is a convenient way to do things.   How to Install Python in R Studio To install Python in R Studio just copy-paste our scripts below. […]

Style Drift refers to the gradual or sudden shift in an investment portfolio’s strategy or asset allocation from its stated investment style or objective. This phenomenon typically occurs in actively managed portfolios where the fund manager deviates from the fund’s proclaimed investment strategy. This leads to a change in the risk and return characteristics of […]

The Lipper Average, often referred to as the Lipper Index, is a set of benchmarks created by Lipper Analytical Services (acquired by Thomson Reuters in 1998), a well-known firm in the field of mutual fund research. These averages are used to compare the performance of mutual funds and other investment vehicles. Each Lipper Average represents […]

Returns-Based Style Analysis (RBSA) is a statistical technique develeoped by Nobel laureate William F. Sharpe. It’s primarily used to determine the investment style of mutual funds or portfolio managers by analyzing their historical returns. This method involves regressing the returns of a portfolio against a set of predefined benchmark indices to ascertain the portfolio’s exposure […]

Fixed-Income Attribution is a process used to analyze the performance of a fixed-income portfolio relative to a benchmark. This technique decomposes the returns from a bond portfolio into different sources to understand what factors contributed to its performance. It’s a tool for portfolio managers, analysts, and traders/investors to assess the effectiveness of trading and investment […]

The Universal Portfolio Algorithm is a strategy in quantitative finance developed by information theorist Thomas Cover. It’s based on the concept of universal schemes in information theory and portfolio selection. This algorithm aims to achieve long-term growth of capital by effectively distributing investments across a variety of assets in a way that does not rely […]

We look at the differences in various types of performance ratios: Sharpe Ratio Sortino Ratio Treynor Ratio Information Ratio Omega Ratio Bias Ratio We’ll also look at the concepts of Active Return and Active Risk.   Key Takeaways: Performance Ratios – Sharpe vs. Sortino vs. Treynor vs. Information vs. Bias Sharpe Ratio: Measures the excess […]