Serenity Ratio

Definition

The Serenity Ratio is a risk-adjusted metric that combines return, drawdown, and volatility to assess the stability and sustainability of an investment. It provides a comprehensive measure of risk-adjusted efficiency.

Formula

$\text{Serenity Ratio}=\frac{R_p - R_f}{\sigma_p \times \text{Ulcer Index}}$

Where:

• $R_p$ = Portfolio return
• $R_f$ = Risk-free rate
• $\sigma_p$ = Standard deviation of portfolio returns
• Ulcer Index = Measure of the depth and duration of drawdowns