Kappa Ratio

Calculate the Kappa Ratio of an investment portfolio or asset’s returns.

The Kappa Ratio is a generalization of the Sortino Ratio that penalizes downside risk using a higher-order lower partial moment. The Sortino Ratio is the special case of the Kappa Ratio with order=2.

Note that this already subtracts the Risk Free Rate.

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Calculate the Kappa Ratio in Python

The Kappa Ratio is available in the Performance module of the open-source Finance Toolkit. Install it with:

pip install financetoolkit -U

Then call get_kappa_ratio as shown below.

from financetoolkit import Toolkit

toolkit = Toolkit(["AAPL", "TSLA"], api_key="FINANCIAL_MODELING_PREP_KEY")

toolkit.performance.get_kappa_ratio()

Which returns:

Parameters

get_kappa_ratio accepts the following parameters:

• period (str, optional): The period to use for the calculation. Defaults to “quarterly” if the Toolkit is initialised with quarterly=True, otherwise “yearly”.
• order (int, optional): The order of the lower partial moment used in the denominator. Defaults to 3.
• rounding (int, optional): The number of decimals to round the results to. Defaults to 4.
• growth (bool, optional): Whether to calculate the growth of the ratios. Defaults to False.
• lag (int | str, optional): The lag to use for the growth calculation. Defaults to 1.
• standardize (bool, optional): Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False.

Related Performance Metrics

The Performance module page introduces the module, and the sidebar lists all of its functions.