# PRAAMS Ratio

To make things even more simple, we designed a metric with superpowers. Using it, you can research any asset in 1 (yes, one) second. It is worth repeating it: one second. It is called the PRAAMS Ratio, and it is a powerful risk-return ratio. It shows how much return an asset offers per unit of risk. It takes one of 7 values: 1 is the lowest score, i.e., this asset has high overall risk and low overall return potential, and 7 is the highest score, i.e., overall return potential is high while the overall risk is low.

It has not been designed to indicate whether you shall buy, hold, or sell an asset and shall not be considered as such. Overall risk and return potential scores are general, combining all critical risk and return factors. These may not be suitable for you, and, of course, the PRAAMS Ratio does not consider your personal risk tolerance, financial objectives and constraints, and investing style.

The PRAAMS Ratio is an improved version of the Sharpe ratio (and many of its successors like the Sortino ratio, Treynor ratio, CALMAR ratio, Information ratio, and others). Sharpe ratio is a relation between an asset’s performance and risk measured by standard deviation. PRAAMS Ratio outperforms the Sharpe ratio:

·       The Sharpe ratio is backward-looking, while the PRAAMS Ratio is forward-looking as it uses much more data to offer good forecasting power;

·       The Sharpe ratio considers only market risk (standard deviation), while the PRAAMS Ratio covers all key risks, including market, credit and other risks as well, as all these may affect the instrument’s price;

·       The Sharpe ratio is not standardised, ranging from minus to plus infinity, and it may be challenging to use for comparison across assets or portfolios. PRAAMS Ratio is standardised, varying from 1 to 7, for every asset class, and it is easy to compare individual assets and portfolios;

·       The PRAAMS Ratio is designed with long-term investing in mind. It works best for investing horizons from one to five years, as confirmed by its numerous back-tests.


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