Term Glossary

Metrics, Models & Concepts

Omega Ratio

Omega ratio is the probability weighted ratio of gains to losses, relative to the threshold R. \begin{equation} \text{Omega Ratio}=\frac{\int_{R}^{\infty}(1-F(r))\, dr}{\int_{-\infty}^{R}F(r)dr} \end{equation}

cumulative distribution function of asset returns
threshold return

The Omega function has several important mathematical features that can be intuitively and directly interpreted in financial terms.

Firstly, Omega takes the value of 1 when threshold is equal to the expected return i.e. \(r = E(r)\), which gives this ratio a natural baseline. Secondly, Omega could be computed with any given degree of precision as it operates on the returns distribution itself and reflects combined effects of all distribution moments.

Function Reference
portfolio_omegaRatio, position_omegaRatio