Definitions, Terms & Conditions

To Customers of Knowledge Leaders Capital, LLC


Beta is a measure of the funds sensitivity to market movements. A portfolio with a beta greater than 1 is more volatile than the market and a portfolio with a beta less than 1 is less volatile than the market.

Alpha is a measure of the portfolio’s risk adjusted performance. When compared to the portfolio’s beta, a positive alpha indicates better-than-expected portfolio performance and a negative alpha worse-than-expected portfolio performance.

Correlation is the extent to which the returns of different types of investments move in tandem with one another in response to changing economic and market conditions. Correlation is measured on a scale of -1 (negatively correlated) to +1 (completely correlated). Low correlation or negative correlation to traditional stocks and bonds may help reduce risk in a portfolio and provide downside protection.

Overall Capture is the ratio between up capture ratio and down capture ratio. Up Capture Ratio is a measure of a manager’s performance in markets with returns at or above 0% relative to the market (benchmark). Down Capture Ratio is a measure of what percentage of the down market was captured by the manager. An Overall Capture Ratio greater than 100% means the investment went up more than the market (benchmark) when the market had positive returns than the investment went down when the market had negative returns.

Standard Deviation is a calculation used to measure variability of a portfolio’s performance.

Sharpe Ratio uses a fund’s standard deviation and its excess return (the difference between the fund’s return and the risk‐free return of 90‐day Treasury Bills) to determine reward per unit of risk.

Treynor Ratio (arith) is a measurement of Treynor Ratio (arith) efficiency utilizing the relationship between annualized risk-adjusted return and risk. It utilizes “market” risk (Beta). Good performance efficiency is indicated by a high ratio.

Sortino Ratio differentiates harmful volatility from total overall volatility by using downside risk. It is a useful way for investors, analysts, and portfolio managers to evaluate an investment’s return for a given level of bad risk. Since this ratio uses the downside deviation as its risk measure, it addresses the problem of using total risk, or standard deviation, as upside volatility is beneficial to investors. Like the Sharpe ratio, a higher Sortino ratio is better. When looking at two similar investments, the one with the higher Sortino ratio is earning more return per unit of bad risk.

An investor cannot invest directly in an index.


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