Traditional investment performance benchmarks quantify how much investors could potentially lose, given the variance (or downside-variance) of the portfolio. These include the Sharpe Ratio and the Sortino Ratio, which generally favor investments with a lower downside risk.
The Omega Ratio can be modified so that it favors return distributions that are skewed to the right with a positive mean, and an exponentially decreasing left-tail. This penalizes dangerous asset behavior which can potentially exist as an edge case.
This Excel spreadsheet finds the investment weights that maximize the Omega Ratio of a portfolio. Under realistic conditions, this requires non-convex global optimizers – Excel’s optimizers are not robust enough. So consider the simplified problem in this spreadsheet as a learning…
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This Excel spreadsheet calculates Kappa, a generalized downside-risk adjusted performance measure.
This Excel spreadsheet helps you calculate the Omega Ratio, a financial benchmark created by Shadwick and Keating in 2002.