Risk Common Less Common Volatility Historical (ex-post) standard deviation of returns. Frequently used to describe the strategy’s reduction in risk relative to a cap-weighted index. Estimated, forward-looking (ex-ante) holdings-based risk. When reliable, it can be a superior method for examining a strategy’s risk positioning relative to the market at a specific point in time. Beta Exposure Historical (ex-post) beta of returns relative to the index. May reveal persistent or dynamic defensive positioning relative to the market environment. Predicted (ex-ante) holdings-based beta. Like estimated risk, designed to measure a strategy’s sensitivity to market moves at a particular moment, as opposed to where it’s been. Downside Risk Maximum drawdown relative to the index. A singular measurement of downside protection compared to the worst of the market. Downside deviation: standard deviation of negative relative returns (either versus cash or an equity benchmark). Isolates volatility risk to the downside, or “bad” risk, from more-useful volatility on the upside that can drive returns. Return Common Less Common Annualized return AND upside and downside capture. Establishes expectations for alpha, as well as asymmetry of returns in various risk regimes. Mean and difference of upside and downside capture, along with average index return over the two environments. The mean indicates how defensive a strategy is over a full market cycle, while the difference reflects how well a strategy maximizes the asymmetry of returns. Defensive strateiges should protect more on the downside than they miss on the upside, or they're no better than replacing a portion of equities with cash. Efficiency Common Less Common Sharpe ratio: a strategy’s return less cash, divided by standard deviation. A Sharpe ratio higher than the benchmark should be a minimum requirement for any defensive equity strategy worth considering. Sortino ratio: a strategy’s return less cash, divided by downside deviation. Similar to Sharpe ratio, but penalizes for downside volatility only.