What the Sortino ratio improves over Sharpe — only penalizes downside volatility

What the Sharpe ratio's limitation is — it penalizes upside volatility as much as downside

Sharpe ratio doesn't differentiate between positive and negative volatility impacts on returns

What the Sharpe ratio measures — excess return per unit of risk: (R - Rf) / σ

Sharpe ratio: Excess return per standard deviation of portfolio returns

What Conditional VaR (CVaR) improves — measures expected loss beyond the VaR threshold

CVaR minimizes tail risk by estimating the average loss beyond the VaR cutoff point

What Modern Portfolio Theory says — diversification reduces risk without reducing expected return

MPT asserts that diversification lowers unsystematic risk while maintaining expected return

What the information ratio measures — excess return per unit of tracking error vs a benchmark

Information ratio measures excess return per unit of tracking error relative to a benchmark

What recency bias does — overweighting recent events in investment decisions

Recency bias leads investors to prioritize recent market trends over long-term historical data