Risk and return · updated October 21, 2026
What is the Omega ratio and how is it calculated
The Omega ratio adds up all gains above a threshold and divides them by all losses below the same threshold. Above 1 means the good side outweighed the bad.
The Omega ratio formula
Omega=Sum of gains above the thresholdSum of losses below the threshold
- The threshold
- For us, zero: any day in the green is a gain, any day in the red is a loss.
- Gains and losses
- The daily returns over the period (1 or 3 years).
Worked example
Over a year, the up days added up to +95% and the down days to −80%.
95total gains
80total losses
1.19Omega ratio
Gains were 19% larger than losses.
How to read the Omega ratio
Below 1losses weighed more
1 - 1.3typical
Above 1.3very good
Unlike Sharpe, Omega accounts for the full shape of gains and losses, including the extreme days.
When the Omega ratio can fool you
Short period: over a single year, a few very good or very bad days change the result a lot.
Related terms
Questions about the Omega ratio
What is a good Omega ratio?
Above 1 means a net gain. Small differences (1.05 versus 1.1) only matter between stocks compared over the same period.
These explanations are for information only. They are not a recommendation to buy or sell.
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