There are a number of good ways to asses and control risks.
The Omega Ratio is one of those methods.
Many of these methods (including the Omega ratio) can be assessed for a portfolio and it is free at this site: Portfolio Visualizer
You also have the option of Maximized Sortino Ratio, Minimize Maximum Drawdown and Maximize Kelly Criterion among others.
Other things like Monte Carlo simulations and the ability to import spreadsheets for dynamic allocations may be of interest to some.
Another use of the omega ratio is as a momentum measure. Put this in a custom formula and try it:
loopsum(“eval(close(ctr)/close(ctr+10)>1.005,close(ctr)/close(ctr+10)-1.005,0)”,43,0,5)/-loopsum(“eval(close(ctr)/close(ctr+10)<1.005,close(ctr)/close(ctr+10)-1.005,0)”,43,0,5)
That’s a ten-month omega ratio based on a two-week period with a 0.5% return. You can use this with the Aggregate command for industry or sector momentum too. It’s a fun alternative to the usual momentum measures, and it privileges equities/funds that have a habit of hardly ever losing money.
Yuval, do you have an example sim using this formula? I’m getting poor results when I backtest it.
Chris
I use it with Aggregate for industry momentum, and the results are pretty good. I don’t use it much for individual stock momentum–for that I mostly use VMA and lagged price to high.
Thank you, but I was wondering if you have a public sim with a link that you can share, which shows the formula being used effectively?
Chris
