Horwitz Ratio Calculator

The Horwitz Ratio measures the risk-adjusted return of an investment by comparing the return to the volatility of returns. It helps investors understand if they are receiving adequate returns for the level of risk taken.

Input Parameters

Calculation Results

Horwitz Ratio

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Calculation Formula

Horwitz Ratio = (Investment Return - Risk-Free Rate) / Standard Deviation

Where:
- Investment Return: The total return earned from the investment
- Risk-Free Rate: The return on an investment with zero risk (e.g., government bond)
- Standard Deviation: Measures the volatility or risk of the investment returns

Interpretation

A higher Horwitz Ratio indicates better risk-adjusted performance. Generally, a ratio above 0.5 is considered good, while a ratio below 0.2 may indicate poor risk-adjusted returns.

Horwitz Ratio Calculator Usage Guide

Learn how to use the Horwitz Ratio Calculator and understand its significance in investment analysis

What is the Horwitz Ratio?

The Horwitz Ratio is a risk-adjusted performance measure that evaluates whether an investment is generating sufficient returns relative to its risk. It was developed by Don Horwitz and is particularly useful for comparing investments with different risk profiles.

How to Use This Calculator

  1. Enter your Investment Return as a percentage (e.g., 12 for 12%)
  2. Input the Standard Deviation of Returns as a percentage (this represents the investment's volatility)
  3. Provide the Risk-Free Rate (typically the yield on government bonds)
  4. Set your Investment Horizon in years (default is 1 year)
  5. Click the Calculate button to see the results

Understanding the Results

The calculator displays two metrics:

  • Horwitz Ratio: This is the primary risk-adjusted return measure
  • Horizon-Adjusted Ratio: This accounts for the investment period by adjusting the standard deviation

Interpretation Guidelines

  • A ratio above 0.5 is generally considered good, indicating good risk-adjusted returns
  • A ratio between 0.2 and 0.5 may be acceptable, depending on the investment context
  • A ratio below 0.2 suggests poor risk-adjusted performance
  • The horizon-adjusted ratio provides additional context for longer-term investments

Example Use Cases

This calculator can help you:

  • Compare different investment options with varying risk levels
  • Evaluate whether your portfolio is meeting its risk-adjusted return objectives
  • Identify investments that may be overvalued based on their risk-adjusted performance