# What is Up-Market & Down-Market Capture Ratio?

Jocelyn Mullis, CFA, CIPM and Sean P. Gilligan, CFA, CPA, CIPM

December 21, 2021

### What do Capture Ratios Explain?

Capture ratios help investors assess how a strategy holds up during different market conditions. They can be used to demonstrate how a strategy performs across different cycles of the market by quantifying how much of the market performance your strategy “captures” on the way up or on the way down.

### What is the Up-Market Capture Ratio?

The Up-Market Capture Ratio evaluates a strategy’s performance in up-markets. It measures how well a manager performed relative to its benchmark during rising market conditions. The ratio is calculated by dividing the average strategy returns by the average returns of the benchmark, but only including periods where the benchmark returns were positive.

### How to interpret the Up-Market Capture Ratio

It is best to compare the results of both Up-Market and Down-Market Capture to 100. For Up-Market Capture, it is ideal to have a result greater than 100 because this signifies that the strategy outperformed the benchmark while the market is rising. For example, if the Up-Market Capture is 115, this shows that the strategy outperformed the benchmark by 15% during the period. This is a helpful indicator for managers that want to demonstrate that their strategy will beat the index during rising market conditions.

However, because this measure focuses on the upside, it will not give you a full picture of the strategy’s performance. A defensive strategy, focused on downside protection, may have a low up-market capture, but still be outperforming because of its low market capture on the downside. It is therefore most common to present this measure in conjunction with the Down-Market Capture Ratio, to provide a more complete picture of overall performance.

### What is the Down-Market Capture Ratio?

The Down-Market Capture Ratio assesses a strategy’s performance in down-markets and measures how well a manager performed relative to the index while the market is falling. Similar to Up-Market Capture, it is calculated by dividing the average strategy returns by the average returns of the benchmark, but only including periods where the benchmark returns were negative.

### How to interpret the Down-Market Capture Ratio

For the Down-Market Capture Ratio, it is ideal to have a result less than 100 because this signifies that the strategy outperformed the benchmark while the market is falling. For example, if the Down-Market Capture is 90, this shows that, on average, the strategy declined only 90% as much as the benchmark did during down periods. This is a helpful indicator for managers that want to demonstrate that their strategy outperforms during market decline. Again, because this measure focuses only on the downside, it will not provide a full picture of the strategy’s performance and should be presented together with the Up-Market Capture Ratio to provide a more complete picture.

### What is Total Capture Ratio?

Total Capture Ratio measures the asymmetry of returns, quantifying overall performance across different phases of the market. Total Capture Ratio is calculated by dividing the Up-Market Capture Ratio by the Down-Market Capture Ratio.

### How to interpret Total Capture Ratio

A Capture Ratio greater than one (1) indicates that the strategy outperformed the benchmark overall. For example, if the Down-Market Capture is 115, but Up-Market Capture is 130, this gives you a Total Capture Ratio of 1.13, indicating that the performance in rising markets offsets the performance during market slump. The same is true for strategies whose primary objective is to protect on the downside. Even when up-market capture is low or breaks even, if the strategy performs well in down markets, it can still outperform the market overall. For example, an up-market capture of 80 and down-market capture of 60 results in total capture of 1.33.

### Why are Capture Ratios Important?

Capture ratios are used to assess whether a strategy is performing according to its investment objective. If the goal of the strategy is to outperform its benchmark, Capture ratios will help demonstrate how the strategy outperformed – whether on the up-side, down-side or overall.

### Questions?

If you have questions our would like help calculating risk statistics for your strategy, contact us. Or check out other investment performance statistics we’ve written about, including the Sharpe Ratio, Information Ratio, and others.