AlternativeSoft - Quant Insight: Rachev Ratio, How Is It Calculated, and Does It Help to Prevent Drawdowns?
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Rachev ratio is a useful statistic that divides the average of right tail (extreme positive) returns by the average of left tail (extreme negative) returns at given percentiles equidistant from the mean. It goes without saying that the lower this ratio is, the higher is the probability of extreme gains relative to extreme losses. (assuming a negative left tail CVaR).
In this article we will evaluate whether Rachev Ratio can be a metric used to avoid significant drawdowns. To do so, we will select the 10 top AUM Long Short Equity Hedge funds that have a long track record (>15 years). All the funds are available for sale in the US and are traded in USD.
In the week ending May 28th 2021, HFM reported that April gains fortify a strong six months for multi-strategy: The average multi-strategy hedge fund gained 1.3% in April as multi-discipline managers continued to build a strong six months followi