Downside Risk

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Financial glossary Financial glossary

Downside Risk is a standard deviation-like measure of risk that focuses on possible finanicial losses resulting from an investment’s volatility.

Unlike the standard deviation, this benchmark is the minimum acceptable return represented by risk-free securities, not the average of returns. Downside risk measures the security’s negative deviations from the acceptable minimum return. In doing so, it expresses undesireable volatility.

The Sortino ratio uses the downside risk as a risk measure.

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