What is the 'Roy's SafetyFirst Criterion  SFRatio'
An approach to investment decisions that sets a minimum required return for a given level of risk. The Roy's safetyfirst criterion allows portfolios to be compared based on the probability that their returns will fall below this minimum desired threshold. It is calculated by subtracting the minimum desired return from the expected return of the portfolio and dividing the result by the standard deviation of portfolio returns. The optimal portfolio will be the one that minimizes the probability that the portfolio's return will fall below a threshold level.
Also known as the "SFRatio".
BREAKING DOWN 'Roy's SafetyFirst Criterion  SFRatio'
The safetyfirst ratio is calculated as:
= E(r)  Threshold Return
Standard Deviation
The optimal decision is to choose the portfolio with the highest SFRatio. The SFRatio is very similar to the Sharpe ratio; for normally distributed returns, when the minimum return is equal to the risk free rate this will provide the same conclusions as if we were to pick the return with the maximum Sharpe ratio. The SFRatio is commonly found in financial courses and certificates, such as the CFA Level I material.

SafetyFirst Rule
Within the context of postmodern and modern portfolio theory, ... 
Sharpe Ratio
The Sharpe Ratio is a measure for calculating riskadjusted return, ... 
Portfolio Return
The monetary return experienced by a holder of a portfolio. Portfolio ... 
Mean Return
1. In securities analysis, it is the expected value, or mean, ... 
Modern Portfolio Theory  MPT
A theory on how riskaverse investors can construct portfolios ... 
Downside Deviation
A measure of downside risk that focuses on returns that fall ...

Trading
5 Ways To Rate Your Portfolio Manager
Investopedia explains: These five performance ratios will help you measure how good your money manager is at increasing the value of your portfolio. 
Investing
Find The Highest Returns With The Sharpe Ratio
Learn how to follow the efficient frontier to increase your chances of successful investing. 
Managing Wealth
Measure Your Portfolio's Performance
Learn three ratios that will help you evaluate your investment returns. 
Managing Wealth
Understanding The Sharpe Ratio
This simple ratio will tell you how much that extra return is really worth. 
Investing
Explaining Expected Return
The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome. 
Managing Wealth
Mitigating Downside With The Sortino Ratio
Differentiate between good and bad volatility with the Sortino Ratio. 
Managing Wealth
More Ways to Evaluate Portfolio Performance
The Jensen measure is another tool investors use to include risk when measuring portfolio performance. 
Managing Wealth
Using Normal Distribution Formula To Optimize Your Portfolio
Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk. 
Managing Wealth
3 Steps to Assess Your Portfolio's Annual Performance
Learn about three simple steps you can use to evaluate the annual performance of your investment portfolio, and why rate of return isn't enough. 
Managing Wealth
Diversify Your Strategies, Not Your Assets
Asset classes are intentionally selflimiting, and their use is incapable of creating true portfolio diversification.

What is the difference between a sharpe ratio and an information ratio?
Understand the meaning of the Sharpe ratio and the information ratio, and understand how they differ as tools for evaluating ... Read Answer >> 
What is a good Sharpe ratio?
Understand how the Sharpe ratio is calculated, and its significance and use for investors in evaluating the performance of ... Read Answer >> 
How do I calculate my portfolio's investment returns and performance?
Learn the basic principles underlying the data and calculations used to perform personal rates of return on investment portfolios. Read Answer >> 
What is the difference between a Sharpe ratio and a Traynor ratio?
Understand the difference between two methods of evaluating portfolio returns on investment, the Sharpe ratio and the Treynor ... Read Answer >> 
What is the difference between the expected return and the standard deviation of ...
Learn about the expected return and standard deviation and the difference between the expected return and standard deviation ... Read Answer >> 
How can I use expected return with my risk profile to make an investment decision?
Understand the basic concepts of expected returns, risk tolerance and riskadjusted returns, and how investors use these ... Read Answer >>