Rachev ratio
The Rachev Ratio (or R-Ratio) is a risk-return performance measure of an investment asset, portfolio, or strategy. It was devised by Dr. Svetlozar Rachev and has been extensively studied in quantitative finance. Unlike the reward-to-variability ratios, such as Sharpe ratio and Sortino ratio, the Rachev ratio is a reward-to-risk ratio, which is designed to measure the right tail reward potential relative to the left tail risk in a non-Gaussian setting. Intuitively, it represents the potential for extreme positive returns compared to the risk of extreme losses (negative returns), at a rarity frequency q (quantile level) defined by the user. The ratio is defined as the Expected Tail Return (ETR) in the best q% cases divided by the Expected tail loss (ETL) in the worst q% cases. The ETL is the average loss incurred when losses exceed the Value at Risk at a predefined quantile level. The ETR, defined by symmetry to the ETL, is the average profit gained when profits exceed the Profit at risk at a predefined quantile level. For more tailored applications, the generalized Rachev Ratio has been defined with different powers and/or different confidence levels of the ETR and ETL. (Wikipedia).
