Efficiency Metrics
Efficiency metrics in trading assess the effectiveness and performance of trading strategies and operations. Here are some of the most commonly used efficiency metrics in trading:
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Efficiency metrics are like the turbo boost in a business engine, supercharging performance and revealing the secret paths to peak productivity!
- Sharpe Ratio: Measures the risk-adjusted return of an investment by comparing its excess return over the risk-free rate to its volatility.
- Sortino Ratio: Similar to the Sharpe ratio but focuses only on downside volatility, assessing returns relative to negative fluctuations.
- Information Ratio: Evaluates the performance of a portfolio or investment relative to a benchmark, adjusted for risk taken.
- Treynor Ratio: Calculates risk-adjusted return by comparing excess return over the risk-free rate to the investment’s beta (β), indicating market risk.