Omega Ratio

The Omega Ratio was authored by Frank A. Sortino. It is designed to evaluate how well an investor is compensated for the risk taken. The higher the Omega Ratio the better the instrument’s performance. The main ingredients are current price and a prior price which are adjusted with the user defined safe margin return. The user must select linear bars but may change the input (close), period length and a margin value. This indicator’s definition is further expressed in the condensed code given in the calculation below.

See Omega Ratio
See also Sortino Ratio

How To Trade Using the Omega Ratio

The Omega Ratio may be used to evaluate a instrument’s performance. No trading signals are calculated.

How To Access in MotiveWave

Go to the top menu, choose Study>Performance>Omega Ratio

or go to the top menu, choose Add Study, start typing in this study name until you see it appear in the list, click on the study name, click OK.

Important Disclaimer: The information provided on this page is strictly for informational purposes and is not to be construed as advice or solicitation to buy or sell any security. Please see our Risk Disclosure and Performance Disclaimer Statement.

Calculation

//input = price, user defined, default is close
//period = p1, user defined, default is 30
//mar = margin, user defined, default is 5 percent
//pow = power
//index = current bar number

BarSize bar = getBarSize();
if (bar.getType() == BarSizeType.LINEAR) barMin = bar.getInterval();
else return;
minPerYr = 60*24*30*12;
priorP = price[index-p1];
mar = mar /100;  //convert percent to decimal
barsPerYr = minPerYr/barMin;
th = Math.pow((1 + (mar)), p1/barsPerYr) - 1; //minium acceptable return/period compounded 
ret = (price/priorP)-1; 
Plot: omega = omega(index, p1, th, ret);
....
Method omega(int index, int period, double th, Object key) 
iprice = 0, upSide = 0, dnSide = 0;
for (i = index-period+1; i lessThan=index; i++) 
    iprice = price[i];
    if (iprice lessThan th) 
        dnSide = dnSide + (th - iprice);
    endif
    if (iprice moreThan th) 
        upSide = upSide + (iprice - th); 
    endIf
endFor  
if (dnSide != 0) 
    return upSide / dnSide;
else return null;
endMethod
....