Rachev Ratio

Reward-to-risk measure and defined as the ratio between the ETL of the opposite of the excess return at a given confidence level 1-αand the ETL of the excess return at another confidence level 1-β. That is:

Rachev Ratio

Rachev Ratio is the Expected Tail Return (ETR) divided by Expected tail loss (ETL). ETL is the average of the returns that exceed your VaR number in the left tail, the ETR is the average of the 5% of returns in the right tail at the 95% confidence level.

Investors who are required to select and monitor investment managers should develop a basic understanding of investment statistics. Quantitative tools can provide you with good insight that you can use in your qualitative interviews with managers and when monitoring your investments.