Upside/Downside Capture Ratio

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Definition

The upside/downside capture ratio measures the ratio of the upside and downside of an investment vs a benchmark.

This ratio explains to you how an investment typically performs in relation to their benchmark index.

An upside/downside ratio of 100 means that the investment typically performs the same as the benchmark regardless of if it is rising or falling. If the benchmark increases by 10%, the investment increases by 10%. If the benchmark decreases by 5%, the investment decreases by 5%.

Investments usually don't have upside/downside ratios of 100. Sometimes, an investment may rise 15% when their benchmark rises by 10% but falls 12% when the market falls 10%.

In this case, we calculate the upside/downside capture ratio by dividing the investment's upside return and dividing by the downside return:

(.15/.10)/(.12/.10) = 1.25.

Multiplying this by 100 gives us an upside/downside capture ratio of 125 for this investment.

Formula

Upside/Downside Capture Ratio = (Investment's Upside / Benchmark's Upside) / (Investment's Downside / Benchmark's Downside) *100

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