How leaderboard rankings work
The dHEDGE Leaderboard aims to rank Pools based on risk-adjusted returns and assets under management (AUM). The leaderboard shows all Pools across all supported networks. Users can filter by the network and other Pool details using the dHEDGE leaderboard dashboard.
The Leaderboard Rank is based on a Pool Score dHEDGE assigns as:
The Sortino Ratio measures risk-adjusted returns and is calculated from the time of the first deposit of the pool since its inception and is calculated on an annualized basis at any given point in time. The target return or risk-free rate in the Sortino Ratio formula is set to 20%. This means to receive a score, Pools are required to have a 20% minimum yearly return. A pool doesn't receive a score until it has a minimum history of 28 days.
The Sortino Ratio calculation has been modified to incorporate a pool's historical relative size. This means that more emphasis is put on performance figures when the total value of the pool is larger vs. smaller. Because the 20% target is adjusted by AUM, this means that this target return is continuously weighed against the pool’s net asset value, and is influenced by new deposits, depending on the size of the deposit.
Higher performing Pool Managers with more assets under management (AUM) receive greater scores. This aligns the leaderboard with Pool Managers who are managing greater sums of investor’s capital with greater risk/reward ratios than smaller pools.
For example, being up 50% on a pool with $100 AUM may be canceled out by being down 10% after a $100,000 deposit. Performing well with this higher AUM will bring the score back up again.
Once eligible, a score is assigned, which increases ranking on the leaderboard, and approves the pool to receive Performance Mining rewards.
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, it’s 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 “good” volatility and instead focusing on the “bad” returns. Similar to standard deviation, a lower downside deviation number is better.
Sortino Ratio =Rp - rfd 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 Pools does not include the performance mining rewards. It is calculated and displayed on a net basis of performance mining and fees.
A pool's Risk Factor is a function of Downside Volatility, a measure used in the Sortino Ratio calculation. Risk Factor is 1 for a pool that has had very little Downside Volatility and 5 for a pool with high historical Downside Volatility, i.e. Pools that have a low Risk Factor translates to smaller downside volatility.