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.

Sharpe Ratio
The Sharpe Ratio is a measure for calculating riskadjusted return, ... 
Mean Return
1. In securities analysis, it is the expected value, or mean, ... 
Estimated LongTerm Return
A unit investment trust's estimated return over the life of the ... 
Account Minimum
The minimum balance required to be maintained in an investment ... 
Return
The gain or loss of a security in a particular period. The return ... 
Information Ratio  IR
A ratio of portfolio returns above the returns of a benchmark ...

Active Trading Fundamentals
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
Measure Your Portfolio's Performance
Learn three ratios that will help you evaluate your investment returns. 
Fundamental Analysis
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. 
Investing Basics
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. 
Investing Basics
More Ways to Evaluate Portfolio Performance
The Jensen measure is another tool investors use to include risk when measuring portfolio performance. 
Investing Basics
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. 
Professionals
The Workings Of Equity Portfolio Management
Achieve analytical efficiency by applying your evaluation to a key set of stocks. 
Investing
Calculating The Means
Learn more about the different ways you can calculate your portfolio's average return. 
Investing Basics
Diversify Your Strategies, Not Your Assets
Asset classes are intentionally selflimiting, and their use is incapable of creating true portfolio diversification. 
Mutual Funds & ETFs
What are Excess Returns?
Excess returns are investment returns that exceed a benchmark or index with similar risk.

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 >> 
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 >> 
How can I calculate the expected return of my portfolio?
Understand the components of the equation used to calculate the expected return of an investor's portfolio. Learn why the ... Read Answer >> 
How is the expected market return determined when calculating market risk premium?
Find out how the expected market return rate is determined when calculating market risk premium and how these figures are ... Read Answer >> 
How do I calculate the percentage gain or loss for my portfolio when all of the stocks ...
Finding the total percentage gain or loss on a portfolio requires a few simple calculations. First, you should understand ... Read Answer >> 
How do I calculate my yeartodate (YTD) return on my portfolio?
Find out how to calculate the yeartodate return of a portfolio, including examples of YTD return calculations with and ... Read Answer >>