Upside Capture Ratio Calculator
This tool calculates the Upside Capture Ratio for an investment relative to a benchmark over a specific period. It helps assess how well the investment performed during periods when the benchmark had positive returns.
Enter the period-by-period returns for your Investment and the Benchmark as comma-separated lists. The lists must contain the same number of periods. Ensure consistent units (e.g., all percentages, or all decimals).
Enter Returns (%)
Understanding the Upside Capture Ratio
What is Upside Capture Ratio?
The Upside Capture Ratio is a measure used in investment analysis to evaluate how well an investment manager or portfolio captured the gains of a benchmark index during periods when that benchmark had positive returns. It is expressed as a percentage.
How is it Calculated?
The formula is:
Upside Capture Ratio = (Total Investment Return in Positive Benchmark Periods / Total Benchmark Return in Positive Benchmark Periods) * 100
Only periods where the benchmark's return is greater than 0% are included in the calculation.
Interpreting the Ratio
- Ratio > 100%: The investment/manager outperformed the benchmark during periods when the benchmark was rising.
- Ratio < 100%: The investment/manager underperformed the benchmark during periods when the benchmark was rising.
- Ratio = 100%: The investment/manager performed exactly in line with the benchmark during periods when the benchmark was rising.
It's often used alongside Downside Capture Ratio to get a fuller picture of performance relative to a benchmark in both up and down markets.
Examples
Below are some examples demonstrating how the Upside Capture Ratio is calculated and interpreted.
Example 1: Outperforming in an Up Market
Scenario: An investment is compared to a benchmark over 5 periods.
Investment Returns: 5%, -2%, 7%, 4%, 1%
Benchmark Returns: 4%, -1%, 5%, 3%, 0%
1. Identify Positive Benchmark Periods: Periods 1, 3, and 4 had positive benchmark returns (4%, 5%, 3%).
2. Sum Returns in Those Periods:
- Sum of Investment Returns: 5% + 7% + 4% = 16%
- Sum of Benchmark Returns: 4% + 5% + 3% = 12%
3. Calculate Ratio: (16% / 12%) * 100 ≈ 133.33%
Conclusion: The investment captured approximately 133.33% of the benchmark's upside, indicating it outperformed the benchmark during rising markets.
Example 2: Underperforming in an Up Market
Scenario: Another investment compared to the same benchmark.
Investment Returns: 3%, -1.8%, 4%, 2%, 0.5%
Benchmark Returns: 4%, -1%, 5%, 3%, 0%
1. Identify Positive Benchmark Periods: Periods 1, 3, and 4 (Benchmark: 4%, 5%, 3%).
2. Sum Returns in Those Periods:
- Sum of Investment Returns: 3% + 4% + 2% = 9%
- Sum of Benchmark Returns: 4% + 5% + 3% = 12%
3. Calculate Ratio: (9% / 12%) * 100 = 75%
Conclusion: The investment captured only 75% of the benchmark's upside, indicating it underperformed the benchmark during rising markets.
Example 3: Matching in an Up Market
Scenario: An investment aiming to track the benchmark closely.
Investment Returns: 3.9%, -0.9%, 4.9%, 2.9%, 0.1%
Benchmark Returns: 4%, -1%, 5%, 3%, 0%
1. Identify Positive Benchmark Periods: Periods 1, 3, and 4 (Benchmark: 4%, 5%, 3%).
2. Sum Returns in Those Periods:
- Sum of Investment Returns: 3.9% + 4.9% + 2.9% = 11.7%
- Sum of Benchmark Returns: 4% + 5% + 3% = 12%
3. Calculate Ratio: (11.7% / 12%) * 100 = 97.5%
Conclusion: The investment captured 97.5% of the benchmark's upside, performing very close to the benchmark during rising markets.
Example 4: Negative Returns in Positive Benchmark Periods
Scenario: An investment performs poorly even when the benchmark is rising.
Investment Returns: -1%, -3%, -0.5%, -2%, -1%
Benchmark Returns: 2%, -1%, 3%, 1%, 0%
1. Identify Positive Benchmark Periods: Periods 1, 3, and 4 (Benchmark: 2%, 3%, 1%).
2. Sum Returns in Those Periods:
- Sum of Investment Returns: -1% + (-0.5%) + (-2%) = -3.5%
- Sum of Benchmark Returns: 2% + 3% + 1% = 6%
3. Calculate Ratio: (-3.5% / 6%) * 100 ≈ -58.33%
Conclusion: The investment had negative returns during the benchmark's positive periods, resulting in a negative upside capture ratio. This indicates significant underperformance when the market is rising.
Example 5: Benchmark Has No Positive Periods
Scenario: Market is consistently down or flat.
Investment Returns: -5%, -2%, -8%, -1%, -3%
Benchmark Returns: -4%, -1%, -6%, -0.5%, 0%
1. Identify Positive Benchmark Periods: None of the benchmark returns ( -4%, -1%, -6%, -0.5%, 0%) are > 0.
Conclusion: The calculator cannot compute an Upside Capture Ratio because there were no periods with positive benchmark returns. (The tool should show an error).
Example 6: Different Number of Entries (Input Error)
Scenario: User inputs lists of different lengths.
Investment Returns: 1, 2, 3
Benchmark Returns: 1, 2
Conclusion: The calculator requires the same number of periods for both investment and benchmark. This input would result in an error message.
Example 7: Handling Zero Benchmark Returns
Scenario: Some benchmark periods are exactly zero.
Investment Returns: 5, -2, 7, 4, 1
Benchmark Returns: 4, -1, 5, 3, 0
1. Identify Positive Benchmark Periods: Periods 1, 3, and 4 (Benchmark: 4, 5, 3). Period 5 (0) is excluded.
2. Sum Returns in Those Periods:
- Sum of Investment Returns: 5 + 7 + 4 = 16
- Sum of Benchmark Returns: 4 + 5 + 3 = 12
3. Calculate Ratio: (16 / 12) * 100 ≈ 133.33%
Conclusion: Periods with zero or negative benchmark returns are correctly excluded. This is the same as Example 1, illustrating the exclusion of the zero period.
Example 8: High Beta-like Behavior (Exaggerated Capture)
Scenario: An investment that significantly amplifies benchmark movements on the upside.
Investment Returns: 8%, -3%, 10%, 6%
Benchmark Returns: 4%, -1%, 5%, 3%
1. Identify Positive Benchmark Periods: Periods 1, 3, and 4 (Benchmark: 4%, 5%, 3%).
2. Sum Returns in Those Periods:
- Sum of Investment Returns: 8% + 10% + 6% = 24%
- Sum of Benchmark Returns: 4% + 5% + 3% = 12%
3. Calculate Ratio: (24% / 12%) * 100 = 200%
Conclusion: The investment captured 200% of the benchmark's upside, doubling the benchmark's positive performance sum in those periods.
Example 9: Flat Investment in Up Market
Scenario: An investment with stable returns regardless of market movement.
Investment Returns: 0%, 0%, 0%, 0%
Benchmark Returns: 2%, -1%, 3%, 1%
1. Identify Positive Benchmark Periods: Periods 1, 3, and 4 (Benchmark: 2%, 3%, 1%).
2. Sum Returns in Those Periods:
- Sum of Investment Returns: 0% + 0% + 0% = 0%
- Sum of Benchmark Returns: 2% + 3% + 1% = 6%
3. Calculate Ratio: (0% / 6%) * 100 = 0%
Conclusion: The investment captured 0% of the benchmark's upside, as it showed no gains when the benchmark was rising.
Example 10: Using Decimal Inputs
Scenario: Using decimal format for returns instead of percentages.
Investment Returns: 0.05, -0.015, 0.07, 0.04, 0.01
Benchmark Returns: 0.04, -0.01, 0.05, 0.03, 0
1. Identify Positive Benchmark Periods: Periods 1, 3, and 4 (Benchmark: 0.04, 0.05, 0.03). Zero is excluded.
2. Sum Returns in Those Periods:
- Sum of Investment Returns: 0.05 + 0.07 + 0.04 = 0.16
- Sum of Benchmark Returns: 0.04 + 0.05 + 0.03 = 0.12
3. Calculate Ratio: (0.16 / 0.12) * 100 ≈ 133.33%
Conclusion: Using decimals yields the same ratio as percentages, as long as units are consistent across both lists. (This is equivalent to Example 1, but with decimal inputs).
Frequently Asked Questions about Upside Capture Ratio
1. What does Upside Capture Ratio tell me?
It tells you how much of the benchmark's positive performance (upside) an investment or fund "captured" during periods when the benchmark was gaining. A ratio above 100% means it captured more, below 100% means it captured less.
2. How is the ratio calculated?
It's calculated by summing the investment's returns during ONLY the periods when the benchmark had a positive return, summing the benchmark's returns during those SAME positive periods, dividing the investment sum by the benchmark sum, and multiplying by 100.
3. Why are only periods with positive benchmark returns used?
The ratio is specifically designed to assess performance during 'up' markets for the benchmark. Downside Capture Ratio is used for periods when the benchmark has negative returns.
4. Can the Upside Capture Ratio be negative?
Yes. If the investment has negative total returns during the periods when the benchmark had positive total returns, the ratio will be negative. This indicates significant underperformance in rising markets.
5. What does an Upside Capture Ratio of exactly 100% mean?
It means the investment's total return during the benchmark's positive periods was equal to the benchmark's total return during those same periods.
6. Do I need to use percentages or decimals for the returns?
You can use either, but you MUST be consistent for both the Investment Returns and the Benchmark Returns. If you use percentages (e.g., 5, -2), the result is the ratio of those percentages. If you use decimals (e.g., 0.05, -0.02), the calculation is the same ratio.
7. Can I enter daily, weekly, monthly, or annual returns?
Yes, the tool works for any period frequency (daily, monthly, etc.) as long as the list of investment returns and benchmark returns corresponds to the exact same periods and are entered in the correct order.
8. What if the benchmark has no periods with positive returns?
The Upside Capture Ratio cannot be calculated in this scenario, as the sum of positive benchmark returns would be zero, leading to division by zero. The tool will display an error message.
9. Is Upside Capture Ratio the only metric I should look at?
No. It's a useful metric for understanding performance in rising markets, but you should also consider other metrics like Downside Capture Ratio (performance in falling markets), Alpha, Beta, Sharpe Ratio, and standard deviation to get a complete picture of risk-adjusted performance across different market conditions.
10. Why do the input lists need to have the same number of entries?
Each entry in the list represents the return for a specific period (e.g., a month, a quarter). To compare performance, you must have corresponding returns for the investment and the benchmark for every single period considered.
