Definition of Downside Deviation

Excerpts from Building Wealth with Managed Futures

"Downside Deviation is a measure of downside volatility. It only considers those monthly performance results that are less than the monthly MAR (minimum acceptable rate of return). Page 50

Detailed information on this and other statistical performance measurements used by the managed futures industry to evaluate CTA performance can be found in Building Wealth with Managed Futures an easy to understand guide to investing in managed futures."      To Purchase

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Monthly Underperformance = Monthly ROR - Monthly Minimal Acceptable Rate of Return
for those months where the Monthly Underperformance < 0

Downside Deviation = Square Root of the (Sum of the (Monthly Underperformance squared) / the number of Periods)

Annualized Downside Deviation = Monthly Downside Deviation * Square Root of 12