Omega Ratio

A relative measure of the likelihood of achieving a given return. It represents a ratio of the cumulative probability of an investment’s outcome above an investor’s defined return level (the threshold level), divided by the cumulative probability of an investment’s outcome below an investor’s threshold level. Omega considers all information readily available from the investment’s historical return data. The higher the omega value, the greater the probability that the given return will be met or exceeded.

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.