LPoulin133 Wrote: ------------------------------------------------------- > Dwight - Would it be possible to have a negative > or lower than RFR minimum acceptable return for > the Sortino Ratio? > > The name ‘Roy’s Safety First’ is so cheezy. I assume that the same thing applies to Sortino ratio so the answer to this question would be Yes. Sounds like the MAR can be anything that you want (positive or negative, etc). Sounds like you always use the MAR for calculations, but when it comes to investing, invest at the Risk-Free Rate.
RSF tell you how many standard deviations your MAR is from the mean (expected) return of the investment. If we have a risky portfolio with a return of 10 and a SD of 20 and our MAR is -2 10-(-2)/20=0.6 So the MAR is .6 standard deviations from the expected return of 10. If we have an option to invest in the Rf Rate of say 2 then 2-(-2)/0= undefined. This is basically because it is infinite standard devations from the Rf rate. In other words, the RSF ratio of the Rf rate can’t be beat.
the way I look at it why would anyone choose a rate that is lower than a risk free rate? that is why if the risk free rate is higher go with that.