# Leaderboard

How leaderboard rankings work

The dHEDGE Leaderboard aims to rank trust minimized vaults based on risk-adjusted returns and total value managed (TVM). The leaderboard shows all vault across all supported networks. Users can filter by the network and other vault details using the dHEDGE leaderboard dashboard.

### Vault Score

The Leaderboard Rank is based on a Vault Score dHEDGE assigns as:

**Score = ****Sortino Ratio**** * SQRT (7-Day Average Vault****Value)**

The Sortino Ratio measures risk-adjusted returns and is calculated from the time of the first deposit of the vault since its inception and is calculated on an annualized basis at any given point in time. โThe target return or risk-free rate in the Sortino Ratio formula is set to 20%. This means to receive a score, vaults are required to have a 20% minimum yearly return. A vault doesn't receive a score until it has a minimum history of 28 days.

The Sortino Ratio calculation has been modified to incorporate a vaults historical relative size. This means that more emphasis is put on performance figures when the total value of the vault is larger vs. smaller. Because the 20% target is adjusted by TVM, this means that this target return is continuously weighed against the vaults net asset value, and is influenced by new deposits, depending on the size of the deposit.

Higher performing Vault Managers with more total value managed (TVM) receive greater scores. This aligns the leaderboard with vault Managers who are managing greater sums of individuals capital with greater risk/reward ratios than smaller pools.

For example, being up 50% on a vault with $100 TVM may be canceled out by being down 10% after a $100,000 deposit. Performing well with this higher TVM will bring the score back up again.

Once eligible, a score is assigned, which increases ranking on the leaderboard, and approves the vault to receive Performance Mining rewards.

### Downside Volatility

Standard deviation takes into consideration downside volatility across a set of monthly returns, but it also takes into account upside volatility. However, should we be as concerned with the upside volatility (i.e. how scattered the positive months are)? Sure, itโs great to know the expected volatility for a specific strategy which includes both the upside and downside (exactly what the standard deviation gives us), however if we only want to focus on the downside volatility, a better risk measure to use is downside deviation.

Downside deviation only focuses on the volatility of negative returns (assuming MAR is set to 0). Downside deviation seeks to remedy the equal weighting of upside and downside volatility calculated in standard deviation by ignoring all of the โgoodโ volatility and instead focusing on the โbadโ returns. Similar to standard deviation, a lower downside deviation number is better.

*Sortino Ratio = Rp - rf*d *

where:

*Rp* = Actual or expected portfolio return

*rf *= Risk-free rate

*d* = Standard deviation of the downside

The 3-month return displayed within the analytics dashboards for vaults does not include the performance mining rewards. It is calculated and displayed on a net basis of performance mining and fees.

### Vault Risk Factor

A vaults Risk Factor is a function of Downside Volatility, a measure used in the Sortino Ratio calculation. Risk Factor is 1 for a vault that has had very little Downside Volatility and 5 for a vault with high historical Downside Volatility, i.e. Vaults that have a low Risk Factor translates to smaller downside volatility.

Last updated