Description of Upside Potential Ratio
The Upside Potential Ratio assesses the returns that may be obtained from an investment asset. The measurement performed by the Upside Potential Ratio is associated with the minimal acceptable return. In its measurements, the Upside Potential Ratio also employs the metrics for downside risks.
Uses of Upside Potential Ratio
The Upside Potential Ratio is employed by individuals and a variety of business entities. The Upside Potential Ratio helps its users to opt for the right strategies. These strategies are expected to have some growth potential which is thought to be stable for a certain amount of minimum return.
In the corporate world, the Upside Potential Ratio is often employed in order to appraise the functioning of a portfolio with derivatives. In business, the Upside Potential Ratio functions as a performance measure which is capable of adjusting to risks.
Equational Representation of Upside Potential Ratio
Following is the equational representation of the upside potential ratio:
U = ?+ ? min (R – Rmin )Pr / ? ? min – ? ( R – Rmin )2 PrIn this equation:
R stands for return
Rmin, min represents the minimal acceptable return
Pr represents the probability of R
Last Updated on : 1st July 2013