Stability Score | Stability Scores

Stability Score

Stability Score | Scores

A measure of the extent to which a style classes have remained constant. A value of zero indicates that no probabilities have changed, whereas a value of 1.0 indicates that one of the style classes has gone from zero to 1.0 and another has changed from 1.0 to zero.

The scores range from 1.0 to zero, that is, from the case in which none of the probabilities change to that in which one style looses 1.0 of probability and another style gains that 1.0 probability.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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401 K Participants | Retirement Plan Participants | Definitions | What is a 401 K Participants?

401 K Participants

401 K Participants | Definition

Employees of an organization participating in either a defined benefit or a defined contribution plan.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Calculating Sortino Ratio | Calculation and Formula

Calculating Sortino Ratio

Calculating Sortino Ratio | Formula

A measure of excess return per unit of risk based on downside semi-variance, instead of total risk (the standard deviation of the portfolio) used by the Sharpe ratio. Since the Sortino ratio takes into account only the downside size and frequency of returns, it measures the reward to negative volatility trade-off.

This is particularly useful in cases where the returns of a portfolio are not normally distributed. In these cases, a better measure than standard deviation for an investment's risk is its downside semi-variance or downside semi-standard deviation. Using Sharpe ratios to compare investment alternatives in these instances can be misleading because the Sharpe measure of risk, portfolio standard deviation, penalizes portfolios for positive upside returns as much as the undesirable downside returns.

In Russell Style Classification (RSC), the Sortino ratio is calculated as follows:

Where

Equals

_ rp	Average return of the portfolio
_ rf	Average return of the risk-free proxy
down	Downside semi-standard deviation

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Overfunded Pension Plan | Definition | What is a Overfunded Pension Plan?

Overfunded Pension Plan

Overfunded Pension Plan | Definition

A pension plan whose assets exceed liabilities.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Calculate Sharpe Ratio Calculation | Formula of Sharpe Ratio

Calculate Sharpe Ratio Calculation

Calculate Sharpe Ratio Calculation | Formula

Developed by William F. Sharpe, this calculation measures a ratio of return to volatility. It is useful in comparing two portfolios or stocks in terms of risk-adjusted return. The higher the Sharpe Ratio, the more sufficient are returns for each unit of risk. It is calculated by first subtracting the risk free rate from the return of the portfolio, then dividing by the standard deviation of the portfolio.

Using Sharpe ratios to compare and select among investment alternatives can be difficult because the measure of risk, portfolio standard deviation, penalizes portfolios for positive upside returns as much as the undesirable downside returns.

The Sharpe ratio is calculated as follows:

Formula for Sharpe Ratio

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Uninsured Plan | Definition | What is an Uninsured Plan?

Uninsured Plan

Uninsured Plan | Definition

A defined benefit pension plan that is not guaranteed by a life insurance product.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Compound Interest Rate Rule of 72 | Interest Rates 72

Compound Interest Rate Rule of 72

A convenient technique for a quick estimation of compound interest rates, derived from the fact that a 7.2% return per year is the interest rate that will double the value of an investment in 10 years. Hence, the years needed to double an investment with a given annual rate of return can be estimated by dividing the "rate of return" into 72.

For example, if an investment's annual return is 6.0%, its value will double in approximately 12 years (72/6). If an investment's annual return is 9.0%, its value will double in approximately eight years (72/9).

Similarly, the "rate of return" that will double the value of an investment in a given number of years can be estimated by dividing the number of "years to double" into 72. For example, the value of an investment will double in six years, if the annual rate of return is approximately 12%.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Rolling Period Returns | Investment Return | Definition

Rolling Period Returns

Rolling Period Investment Returns

(1) The period of time used to compute the annualized rate of return of particular indexes or composites in a technique that allows users to see longer term trends.

(2) The length of time between the beginning of one cycle and the start of the next. The rolling period is expressed in units corresponding to the periodicity of the chart. Also called the gap length.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Investment Risk and Return | Definition | What is it?

Investment Risk and Return

Investment Risk and Return | Definition

A software module that provides a set of commonly used statistical measures for the analysis of portfolio returns. These statistical measures include various summary measures for risk and return. The return measures include arithmetic average returns, geometric average returns and compound returns over a user selected window. They are displayed in absolute returns and excess returns. The risk measures include standard deviation of returns as well as downside semi-variance and standard deviation. Also provided are risk adjusted returns and various risk/return ratios such as the Sharpe ratio, Sortino ratio, Treynor ratio, Jensen alpha, and the appraisal ratio. Other useful statistics include residual risk, coefficient of determination, upside and downside beta and the Merton-Henriksson test for market timing ability.

RSC's risk/return statistics are grouped and displayed in several different reports and graphs, including a scatter plot of the portfolio return versus a chosen benchmark and the time series of specific risk residuals. The system offers a variety of market benchmarks and risk-free rates. The comprehensive risk/return statistics provides a thorough understanding of the nature of the historical returns of the portfolio.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Keogh Retirement Plan | Definition | What is a Keogh Retirement Plan?

Keogh Retirement Plan

Keogh Retirement Plan | Definition

An individual retirement plan for self-employed persons, named after the New York State congressman who introduced the bill in the mid-1960's. Prior to passage of this bill, self-employed individuals had no means of saving for their retirement on a before-tax basis. Earnings are tax deferred until withdrawal, which may begin at age 59-1/2.

IRA and Keogh plans are subject to frequent changes in law with respect to the deductibility of contributions.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Risk Statistics & Ratios | 1 Page Guide

Risk Statistics & Ratios

Risk Statistics & Ratios | 1 Page Guide

Beta
Slope coefficient of the regression of the portfolio on the benchmark or market portfolio.

Upside Beta
Sensitivity of the portfolio to the market (or benchmark) when the market is up or greater than zero.

Downside Beta
Sensitivity of the portfolio to the market (or benchmark) when the market is down or less than zero.

Upside Semi-Variance
Measure of the average squared variation of the portfolio from the cut-off point b when the market (or benchmark) is up or greater than zero.

Downside Semi-Variance
Measure of the average squared variation of the portfolio from the cut-off point b when the market (or benchmark) is down or less than zero.

Upside Semi-Standard Deviation
Square root of the upside semi-variance.

Downside Semi-Standard Deviation
Square root of the downside semi-variance.

Information Ratio
Average excess return divided by the standard deviation of the excess return. It seeks to summarize the mean-variance properties of an active portfolio with a single number.

t-Statistic
The t-statistic for the alpha of the regression of the portfolio on the benchmark or market.

Probability of t
Probability associated with the t-statistics of alpha or the probability that the alpha is not zero.

95th Level of Significance
Number of years it will take for the Jensen Alpha of this size to achieve statistical significance at the 95th percent level given the alpha and standard error of the regression of the portfolio on the benchmark. It is another way of viewing the confidence that the portfolio's alpha is not really zero.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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IRA Retirement Account | Definition | What is a IRA Retirement Account?

IRA Retirement Account

IRA Retirement Account Definition

Individual Retirement Account. A tax-deferred savings account to which individuals can contribute.

With the passing of ERISA, IRA's were established to enable individuals to set up their own retirement plans. Employees may contribute to an IRA each year, regardless of participation in a company-sponsored plan. All contributions, along with investment and interest earnings, are tax deferred until retirement. Funds may be withdrawn prior to retirement, but not without incurring a substantial penalty.

IRA and Keogh plans are subject to frequent changes in law with respect to the deductibility of contributions.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Interest Assumption | Definition | What is an Interest Assumption?

Interest Assumption

Interest Assumption | Definition

For actuarial purposes, the expected rate of investment return on a plan's assets.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Interest Assumption | Definition | What is an Interest Assumption?

Interest Assumption

Interest Assumption | Definition

For actuarial purposes, the expected rate of investment return on a plan's assets.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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US Market Risk Premium | Risk Premiums

US Market Risk Premium

US Market Risk Premium | Definition

The risk premium of an investment is the rate of return that can be expected or demanded by investors over and above the risk-free rate. Three factors determine the risk premium: (a) the systematic risk of the investment; (b) the average expected return for the market relative to an index (such as the S&P 500 or the Russell 3000®); and (c) the return expected from a risk-free investment (such as a T-bill).

Risk premium is calculated by subtracting the risk-free rate from the market rate and then multiplying the difference by the investment's beta coefficient. The total expected return on an investment is equal to the risk-free rate plus the investment's risk premium.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Current Risk Free Interest Rate | Annual Average Risk Free Rate

Current Risk Free Interest Rate

Current Risk Free Interest Rates

(1) A theoretical return that is earned with perfect certainty; it is without risk.

(2) The rate of return available on an investment considered to be essentially without risk. The available rate paid on US Treasury bills, for instance, is typically used as the risk free rate. The rate is considered to be without risk in the sense it is backed by the full faith and credit of the US Government

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Risk to Return Ratio | Risk Return Ratio | Definition

Risk to Return Ratio

Risk to Return Ratio | Definition

The observed average return divided by the standard deviation of returns. This is the simplest measure of return to risk trade off and can be used to compare portfolio returns.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Financial Ratios Investment Ratio | A 1 Page Guide to Ratios

Financial Ratios Investment Ratio

Financial Ratios Investment Ratio | 1 Page Guide

Average Return
The arithmetic average. These returns are appropriate for expectational purposes, such as asset allocation inputs.

Average Excess Returns
The arithmetic average of the portfolio return minus the benchmark return. If and only if the portfolio beta is 1.0 or assumed to be 1.0, then the average excess return will equal Jensen Alpha or average risk adjusted excess return.

Cumulative Return
The cumulative return or the growth of a dollar over the time period specified. Note the cumulative return picture obtained often depends on the beginning date for calculation. The choice of the initial time point can often lead to different conclusions.

Excess Return/Risk
The ratio of return in excess of the benchmark divided by the standard deviation of the portfolio. If the beta is 1.0, this measure is analogous the appraisal ratio.

Sharpe Ratio
The ratio of annualized return minus the annualized risk-free rate divided by the annualized standard deviation of the portfolio minus the annualized standard deviation of the risk-free rate. It is a measure of the risk to return trade-off.

Treynor Ratio
The ratio of average return minus the average risk-free rate divided by the beta of the portfolio. It is a measure of the risk to return trade-off using beta instead of standard deviation.

Sortino Ratio
The ratio of average return minus the average risk-free rate divided by the downside semi-standard deviation of the portfolio. It is a measure of the risk to return trade-off suitable when the returns are not normally distributed. It does not penalize the return for good or positive variation.

Jensen Alpha
The abnormal return or the risk adjusted excess return. It is the most widely used measure of the risk to return trade-off.

Appraisal Ratio
The ratio of risk adjusted excess return to diversifiable risk. It is the ratio of alpha to standard error. It is a measure of the additional return a portfolio offers relative to the increase in tracking error around a benchmark.

Frequency Up/Down
The number of times the portfolio return was above (up) and below (down) the cut-off point, zero.

Percentage Up/Down
The percentage of time that the portfolio is above (up) and below (down) the cut-off point, zero.

Average Return
The average return when the portfolio is above (up) and below (down).

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Return Relative | Rate of Return Relative to One Unit

Return Relative

Return Return Relative | Rate of Return

(1) The rate of return stated relative to one unit: (return/100 + 1). For example, a return of 32% has a return relative of 1.32 (32/100 + 1). A return of -6.05 is expressed as.9395 (-6.05/100 + 1). In Russell Performance Attribution (RPA), return relative measures are used to link returns of discrete periods.

(2) The rate of return for a given period stated in terms relative to $1.00. For example, a 5.6% rate of return would have a 1.056 return relative (5.6 divided by 100 + 1 = 1.056). This translates into each invested dollar having grown to $1.06 at the end of the period.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Return Pattern Analysis Sytle | 1 Page Guide

Return Pattern Analysis

Return Pattern Analysis | Definition

In Russell Style Classification (RSC), a optimization method of analyzing investment style based on the algorithm designed by Yuan An Fan, Ph.D. of the Frank Russell Company. The algorithm is similar to many non-linear optimization programs. The object of the program is to find a set of weights which, when applied to the indexes selected, minimizes the residual squared errors or differences between the optimal weighted set and the input portfolios return series. In the least squares sense, this problem is similar to standard multiple regression but differs (and becomes non-linear) because the weights cannot be less than zero or greater than one and must sum to one.

The results of the optimization are stored in a database for subsequent analysis. The number of optimizations depends on the length of window used to set up the inputs for the optimization. The recommended choice is 60 months or 5 years of data. The first 60 months of index and manager data are analyzed and the means, variances and co-variances (correlations) are passed to the optimizer to find the optimal set of weights. The 61st month is then added to the data set and the first month is dropped, essentially rolling the window one-month ahead, and the optimization is repeated. This rolling of the window and analyzing the data sets continues until the last time point in the data set is reached. The number of optimizations or analyses obtainable is equal to the number of time points (of complete data sets) minus the length of the rolling window, plus one. For example a data set covering 75 time points or months, using a rolling window of 60 months, will yield 16 analyses or optimizations (75 - 60 + 1 = 16)

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Reporting Time Periods | Definition | What is it?

Reporting Time Periods

Reporting Time Periods | Definition

A list of time periods, such as trailing, annualized, and 12-month, that can be selected for reporting. The report period end date is the last date in the time period for data being reported.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Reporting Currency Accounting | Foreign Exchange | Definition

Reporting Currency Accounting

Reporting Currency Accounting | FX

In Russell Performance Attribution (RPA), the currency in which report values are expressed. When the local currency of an asset is different from the reporting currency, RPA calculates a currency effect.

Reporting currency is to be distinguished from input currency, which is the currency in which data are imported or manually entered into Russell/Mellon Performance Attribution RPA.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Insured Plan | Definition | What is an Insured Plan?

Insured Plan

Insured Plan | Definition

Defined benefit pension plan that is guaranteed by a life insurance product.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Simple Linear Regression Coefficient Model Analysis

Simple Linear Regression

Simple Linear Regression Coefficient Model

A statistical technique used to establish the relationship of a dependent variable (fund or portfolio) and an independent variable (index).

Simple Linear Regression
A regression analysis between only two variables, one dependent and the other independent (explanatory).

Multiple Regression
A regression analysis between a dependent variable and more than one independent (explanatory) variable.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Multiple Linear Regression Analysis Model Estimation

Multiple Linear Regression

Multiple Linear Regression Model Analysis

A statistical technique used to establish the relationship of a dependent variable (fund or portfolio) and an independent variable (index).

Multiple Regression
A regression analysis between a dependent variable and more than one independent (explanatory) variable.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Funding Ratio | Ratio and Calculation | What is a Funding Ratio?

Funding Ratio

Funding Ratio | Definition

The ratio of a pension plan's assets to its liabilities.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Calculating Covariance Statistics | What is it?

Calculating Covariance Statistics

Calculating Covariance Statistics | Formula

A measure of the degree to which two variables move together. A positive value means that on average, they move in the same direction.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Camulos Capital LP | Hedge Fund Tracker Notes

Camulos Capital Hedge Fund

Camulos Capital | Hedge Fund Notes

Camulos Capital in a letter last week asked its investors to promise to keep nearly $2bn (€1.4bn) in place with the firm for another year as part of a restructuring. Camulos, the letter said, will take a 1.25% management fee, instead of the standard 2% fee, on most assets. If the fund makes money starting October 1 through 2010, the firm will keep 10% of most profits, not the 20% that is typical of hedge funds and that Camulos investors previously agreed to pay, the letter said.

Meanwhile, Ore Hill Partners, a New York money manager with about $2.8bn in hedge fund assets, also told clients it is ready to deal. It offered a sliding scale of fees depending on how long investors would commit money to its Ore Hill International Fund. With returns lower this year at many hedge funds, there has been much talk of investors demanding better terms. But until now, there have been few reports of hedge funds actually changing their model.

Lowering fees can make it hard for funds to keep top analysts and traders, who often are paid out of profits, and it can undercut a fund's prestige. Just last year, investors were begging to get into hot funds. But with hedge funds having their worst year in nearly two decades, investors are getting antsy. Source

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Counterparty Credit Risk Exposure Management | Definition | What is it?

Counterparty Risk

Counterparty Risk Glossary Definition

(1) The risk that the other party to an agreement will default.

(2) In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.

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Commodity Swap Agreement | Commodity Swaps

Commodity Swap Agreement

Commodity Swap Glossary Agreement

A swap in which at least one set of payments is based on the price of a commodity, such as oil. The other set of payments can be either fixed or determined by some other floating price or rate. While payments could be made by delivering actual units of the underlying commodity, in practice cash is exchanged instead.

Commodity swaps are becoming increasingly common in the energy and agricultural industries, where demand and supply are both subject to considerable uncertainty. For example, heavy users of oil, such as airlines, will often enter into contracts in which they agree to make a series of fixed payments, say every six months for two years, and receive payments on those same dates as determined by an oil price index. Computations are often based on a specific number of tons of oil in order to lock in the price the airline pays for a specific quantity of oil, purchased at regular intervals over the two-year period. However, the airline will typically buy the actual oil it needs from the spot market.

In most interest rate, currency and equity swaps, the variable payment is based on the price or rate on a specific day. However, in oil swaps it is common to base the variable payment on the average value of an oil index over a period of time, which could be weekly, monthly, quarterly, or the entire period between settlements. This feature removes the effects of an unusually volatile single day and ensures that the payment will more accurately represent the value of the index. Average-price payoff structures are also found in other derivatives, particularly options.

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Commodity Futures Markets | What are they?

Commodity Markets

Commodity Markets Glossary Definition

Domestic Commodity Markets

CBOT	Chicago Board of Trade
COMEX	Commodity Exchange of New York
CME	Chicago Mercantile Exchange
CSCE	Coffee, Sugar, Cocoa Exchange
IMM	International Monetary Market
IOM	International Options Market
GEM	Global Emerging Market
GLOBEX	Global Electronic Exchange
KCBT	Kansas City Board of Trade
MGE	Minneapolis Grain Exchange
MIDAM	Mid-America Commodity Exchange
NYCE	New York Cotton Exchange
FINEX	Financial Instruments Exchange of New York
NYFE	New York Futures Exchange
NYMEX	New York Mercantile Exchange

International Commodity Markets

Deutsche Terminbourse	Frankfurt am Main, Germany
Hong Kong Futures Exchange	Kowloon, Hong Kong
International Petroleum Exchange	London, England
London Commodity Exchange	London, England
London International Financial Futures Exchange	London, England
London Metals Exchange	London, England
Marche A Terme International De France	Paris, France
Mercado De Futuros Financieros	S.A., Barcelona, Spain
Montreal Stock Exchange	Montreal, Quebec, Canada
Singapore International Monetary Exchange	Singapore, Singapore
Swiss Options and Financials Futures Exchange	Zurich, Switzerland
Sydney Futures Exchange	Sydney NSW, Australia
Tokyo International Financial Futures Exchanges	Tokyo, Japan
Toronto Futures Exchange	Toronto, Ontario, Canada
Winnipeg Commodity Exchange	Winnipeg, Manitoba, Canada

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Commodity Exchange Market | Markets | Definition

Commodity Exchange Market

Commodity Exchange Market Definition

A commodity is food, a metal or another physical substance that investors buy or sell, usually via futures contracts.

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