Page 110 Vol. 5 (Alternatives) Ques 12 index, contrast, standard, against, percent

svgleeson

Hi guys. I need a little help
Page 110 Vol. 5 (Alternatives)
Compute the annualized downside deviations for the hedge fund and the index, and contrast them to the standard deviation. The annualized standard deviations for the hedge fund and the index are, respectively, 8.64 percent and 9.19 percent.
Compute the Sortino ratio and, based on this statistic, evaluate the performance of the hedge fund against the performance of the index portfolio.
Answer
A hurdle rate of 5% per year equates to a monthly hurdle rate of 5%/12 = 0.4167%.
The downside deviation for the hedge fund =     sq root of 28.78 (12 ? 1)

smartpants

-2 - 0.4167
since you are squaring it … the sign does not matter.