# Downside Deviation

When calculating DD, do you only include the points that are below MAR or do you also include points above the MAR and treat them as zero? In the denominator the number of points minus one is used. Does this include the positives or only downside points? So if you have 50 returns and 5 are below MAR and 45 are positive - is the denominator 49 or 4?

You shouldn’t need to calculate DD on the exam. It’s not part of the LOS. If needed, it will be provided for you.

I think it includes them as zero. In your example, denominator would be 49, I think. I looked into this a while ago and this is what I remember.

only the ones below the MAR. and the denominator is n-1 = 4

sorry, prockets is right.

No, Bips you are right. Only those below the MAR are included in the N.

At least that’s hwo I recall doing it…

thats what i thought. but the numbers that are greater than the MAR are taken to be zero. just checked it CFA Reading 34 pg 368 #12 i think we are focussing too much on the small irrelevant stuff.

Nevermind N does equal number of periods regardless. N is N.

so, N is 5?

No N = 50

i see… if most returns are higher than the MAR… the down Dev will be very low using a denom of 50…

yes, CFAI V4, Reading 34, p. 337-338 shows the calculation