Chapter 10
Measuring Risk and Performance

Financial Indicators
Key Financial Indicators to Monitor
Measuring and Forecasting Inflation
From Index Level to Inflation Rate
Which Index Governs What
Your Personal Inflation Rate Is Not CPI
Causes of Inflation, and Which Kind Hurts You
Forecasting: What the Market Already Thinks
Variance, Covariance, Correlation
Variance
Covariance
Correlation
Volatility
What the Number Means, Before the Math
Emergence of Volatility
Measuring Volatility
Realized or Historical Volatility
Unrealized or Implied Volatility
“Beta” measure
Volatility Drag
Sharpe ratio
Sortino ratio
Omega Ratio
Drawdown and Tail Risk
Maximum Drawdown and the Recovery Asymmetry
Calmar, MAR, and the Ulcer Index
Value at Risk (VaR)
Conditional VaR (Expected Shortfall)
Skewness, Kurtosis, and Strategies That Lie
What to Actually Use
Measuring What You Actually Earned