# Down-Market Capture Ratio: Formula and Examples

The down-market capture ratio is a statistical measure of an investment manager's overall performance in down-markets. It is used to evaluate how well an investment manager performed relative to an index during periods when that index has dropped. The ratio is calculated by dividing the manager's returns by the returns of the index during the down-market and multiplying that factor by 100.

﻿ \begin{aligned}&\text{Down-Market Capture Ratio}\ =\ \frac{\text{MRDM}}{\text{Index Returns}} \times 100\\ &\textbf{where:}\\&\text{MRDM}=\text{manager's returns in down market}\end{aligned}﻿

﻿ \begin{aligned}&\frac{\text{Up-Market Capture Ratio}}{\text{Down-Market Capture Ratio}}\ - \ \text{Market Capture Ratio}\\&\qquad= \ \frac{\text{Manager's Returns}}{\text{Index Returns}}\ \times\ 100\end{aligned}﻿

## Breaking Down Down-Market Capture Ratio

An investment manager who has a down-market ratio of less than 100 has outperformed the index during the down-market. For example, a manager with a down-market capture ratio of 80 indicates that the manager's portfolio declined only 80% as much as the index during the period in question. Many analysts use this simple calculation in their broader assessments of investment managers.

When evaluating an investment manager, it is best also to consider the up-market capture ratio. This ratio is calculated in the same way except down-market returns are replaced with up-market returns. Once the up-market capture ratio is known, you can compare it with the down-market ratio, and it may reveal that a manager with a large down-market ratio still outperforms the market.

## Example of Down-Market Capture Ratio

For example, if the down-market ratio is 110, but the up-market ratio is 140, then the manager has been able to compensate for the poor down-market performance with strong up-market performance. You can quantify this by dividing the up-market ratio by the down-market ratio to get the overall capture ratio. In our example, dividing 140 by 110 gives an overall capture ratio of 1.27, indicating the up-market performance more than offsets the down-market performance. The same is true if the manager performs better in down markets than up markets. If the up-market ratio is only 90, but the down-market ratio is 70, then the overall capture ratio is 1.29, indicating that the manager is outperforming the market overall.