We know that Sharpe ratio is a popular measure for measuring the reward (or excess return) of an asset per unit of risk. One problem with Sharpe ratio is that it is dimensionless, that is, as it uses the standard deviation of returns as a measure of risk. It penalizes both upward and downward volatility […]

# Risk and Risk Aversion

## Omega Index

The Omega Index (or Omega ratio) was developed by Keating and Shadwick in 2002. It is a ratio of the upside variation in the portfolio and the downside variations of the portfolio. The returns of a portfolio are partitioned into losses and gains compared to a threshold value. The Omega ratio is then the ratio […]