Question 1

What is the difference between Sharpe and Sortino ratio?

Accepted Answer

Sharpe ratio uses total standard deviation (both up and down volatility) in the denominator. Sortino ratio uses only downside deviation - volatility below a target return. Sortino is more appropriate for asymmetric return strategies like options writing, where upside volatility is desirable.

Question 2

What is Value at Risk (VaR)?

Accepted Answer

VaR estimates the maximum loss not exceeded with a given confidence level over a time period. A 1-day 99% VaR of $1M means there is a 1% chance of losing more than $1M in a day. Historical, parametric, and Monte Carlo methods give different estimates.

Question 3

How does a high water mark work?

Accepted Answer

A high water mark ensures the manager only earns performance fees on new profits above the previous highest NAV. If a fund falls from $100 to $80 and recovers to $95, no performance fee is charged until NAV exceeds $100. It protects investors from paying fees on recovered losses.

Question 4

Are these hedge fund tools free?

Accepted Answer

Yes - completely free, no sign-up required. Results export to CSV or PDF.

Free Hedge Fund Tools & Calculators

Hedge fund calculators for performance and risk

Hedge Fund Tools - FAQ