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FT4Web by Investors FastTrack |
Ulcer Index and Ulcer Performance IndexLast updated 05/28/2014 Ulcer Index and UPI serve two different purposes. Both measure sickening drops. Use UI with an mix of securities to determine which is the most likely to give you an ulcer. Use UPI to rate a group of related securities (like the GROWTH family of funds) when compared to a the low basis risk return. UPI is a relative rating comparing another issue selected in the Parameters Dialog. Ulcer Index (UI)The Ulcer Index is a measurement of day- to-day drops. It doesn't matter if an issue gains back all of its losses, the fact that it takes sickening dips is all that counts in the UI calculation. In the chart below, which of the issues would be the mostly likely to upset your stomach? |
Surprisingly, its not the green highest SD= value, Calpine. CSCO is the loser with the highest UI. While CPN presents one big stomach ache, CSCO disappoints again and again. Our subjective interpretation: To play CSCO profitably, you will have to trade more often and more quickly and your percent of losing trades will likely be greater. |
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Ulcer Performance Index (UPI)
Unlike the Ulcer Index. UPI is a function not only of the issue being measured but also its performance with respect to another issue. Traditional calculation of UPI uses " Risk Free Return" (RFR) in UPI calculation. RFR is selectable in the Low Basis for Risk Return options FT defines RFR as the constant rate of return using the ranked period's last price of IRX-X (90-day treasury,short-term interest rates). IRX-X is an index in the Funds database. HOWEVER, RFR has become unusable since it dropped to near 0% in the 2008 financial crisis. See discussion below. |
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Note: When the UI, which is a divisor in the UPI computation, is very near to zero then UPI is arbitrarily set to 9999.99. This would indicate the best possible result. UI=0 and UPI =9999.99 means that there were nil drawdowns for the period. |
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Seemingly Odd UPI orderUPI is a function of return, Ulcer index, and selected Low Basis.
As noted immediately above. Don't use UPI on a mix of different types of issues (not highly correlated), OR, at least, choose one of the lower return issues to set as the Low Risk Basis.
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