The Omega ratio is a measure of risk of an investment asset, portfolio or strategy. It involves partitioning returns into loss and gain above and below a given threshold, the ratio is then the ratio of the probability of having a gain by the probability of having a loss.

The ratio is calculated as:


where F is the cumulative distribution function, r the threshold defining the gain versus the loss.
The higher the ratio the better. To the contrary of the Sharpe ratio

Sharpe ratio

The Sharpe ratio or Sharpe index or Sharpe measure or reward-to-variability ratio is a measure of the excess return per unit of deviation in an investment asset or a trading strategy, typically referred to as risk , named after William Forsyth Sharpe...

, where only the first two moments have an influence on the risk measure, the ratio enables to take into account all moments of the distribution. The ratio was created by Keating and Shadwick

See also

• Post-modern portfolio theory
  Post-modern portfolio theory
  Post-modern portfolio theory is an extension of the traditional modern portfolio theory...
  
  
• Upside potential ratio
  Upside potential ratio
  The Upside-Potential Ratio is a measure of a return of an investment asset relative to the minimal acceptable return. The measurement allows a firm or individual to choose investments which have had relatively good upside performance, per unit of downside risk....
  
  
• Sharpe ratio
  Sharpe ratio
  The Sharpe ratio or Sharpe index or Sharpe measure or reward-to-variability ratio is a measure of the excess return per unit of deviation in an investment asset or a trading strategy, typically referred to as risk , named after William Forsyth Sharpe...
  
  
• Sortino ratio
  Sortino ratio
  The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target, or required rate of return, while the Sharpe ratio penalizes both upside and downside...
  
  
• Modern Portfolio Theory
  Modern portfolio theory
  Modern portfolio theory is a theory of investment which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets...