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Home >> Finance Theories >> Interest Rate  >>  Upside Potential Ratio

Upside Potential Ratio

Overview of Upside Potential Ratio
The Upside Potential Ratio was evolved by Frank A. Sortino. The Upside Potential Ratio could also be described as the ratio, which deals with partial moments. It is a measure of performance that is connected to goals. The Upside Potential Ratio is obtained by dividing the upside potential with the downside deviation.
Description of Upside Potential Ratio
The Upside Potential Ratio assesses the returns that could be obtained from an investment asset. The measurement performed by the Upside Potential Ratio is associated with the minimal acceptable return. In its measurements, the Upside Potential Ratio also employs the metrics for downside risks.
Uses of Upside Potential Ratio
The Upside Potential Ratio is employed by individuals, as well as by a variety of business entities. The Upside Potential Ratio helps its users to opt for the right strategies. These strategies are expected to have some growth potential, which is supposed to be stable for a certain amount of minimum return.

In the corporate world the Upside Potential Ratio is often employed in order to appraise the functioning of a portfolio, which has derivatives. In the domain of business the Upside Potential Ratio functions as a performance measure, which is capable of adjusting to risks.

Equational Representation of Upside Potential Ratio

Following is the equational representation of the upside potential ratio:

U = ?+ ? min (R - Rmin )Pr / ? ? min - ? ( R - Rmin )2 Pr In this equation:

R stands for return
Rmin, min represents the minimal acceptable return
Pr represents the probability of R
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