Up and down capture ratios: how a portfolio participates in market gains and losses
The up capture ratio and down capture ratio measure how a portfolio participates in the benchmark's positive and negative periods respectively. Together they describe the asymmetry of a portfolio's relationship to its benchmark: does it capture most of the upside while limiting the downside, or does it amplify both gains and losses equally? A portfolio that captures 90% of benchmark gains while absorbing only 70% of its losses has a genuinely favourable profile for long-term compounding, even if its headline return appears similar to the benchmark.
What capture ratios measure
The up capture ratio is calculated by isolating all periods in which the benchmark produced a positive return, then comparing the portfolio's return over those same periods to the benchmark's return. A ratio of 100% means the portfolio matched the benchmark exactly in up markets. A ratio above 100% means it outperformed the benchmark during rising periods; below 100% means it lagged. The down capture ratio applies the same logic to periods when the benchmark fell, comparing the portfolio's return in those periods to the benchmark's negative return. A down capture ratio below 100% is favourable—the portfolio lost less than the benchmark when markets declined.
The ideal combination is a high up capture ratio and a low down capture ratio—capturing most gains while avoiding most losses. This combination is difficult to achieve consistently and should be regarded with scepticism if observed over short periods, but it is a meaningful signal of skill or structural advantage over multi-year horizons.
The formula
Formula
Up capture = (Portfolio return in up periods) / (Benchmark return in up periods) × 100
Down capture = (Portfolio return in down periods) / (Benchmark return in down periods) × 100
Where:
Up periods = all periods where benchmark return > 0
Down periods = all periods where benchmark return < 0
Returns are typically annualised before computing the ratio
How to interpret capture ratios
A portfolio with an up capture of 95 and a down capture of 80 has asymmetric participation that favours the investor: it captures 95% of gains but absorbs only 80% of losses. Over a full market cycle, this asymmetry compounds favourably. A portfolio with an up capture of 110 and a down capture of 110 has amplified both directions equally—it is leveraged to the benchmark rather than asymmetrically positioned.
The ratio between up capture and down capture is sometimes summarised as the capture ratio: up capture divided by down capture. A capture ratio above 1.0 is favourable. A value of 1.19 (95 up / 80 down) indicates meaningfully asymmetric participation.
Capture ratios are most informative over periods containing at least one full market cycle—including both a significant decline and a recovery. Measuring them over only a bull market period will inflate the up capture and suppress the down capture, producing an artificially favourable picture.
Rolling capture ratios
The scalar capture ratios summarise the full period, masking how the asymmetry has evolved over time. Rolling capture ratios compute the same metrics over a sliding window, revealing whether the portfolio's defensive or offensive characteristics are persistent or concentrated in specific periods. A strategy that shows high up capture and low down capture consistently across multiple rolling windows—including different market regimes—provides stronger evidence of a durable structural advantage than one with favourable full-period numbers concentrated in a single episode. Rolling analysis reveals regime-dependent variation in the metric over time.
Limitations
Capture ratios are highly sensitive to the benchmark chosen. A portfolio that looks favourable against one benchmark may look unfavourable against another. They are also sensitive to the frequency of return data: monthly capture ratios and daily capture ratios for the same portfolio can differ because the classification of periods as positive or negative changes with frequency.
Both ratios require a benchmark and should not be calculated against an inappropriate one. A multi-asset portfolio that includes bonds, commodities, and alternatives should not have its capture ratios measured against a pure equity benchmark—the down capture will be inflated in equity bear markets simply because the portfolio holds assets that do not track equities, not because it has superior defensive construction.
Capture ratios in pfolio
Up and down capture ratios are not currently displayed in pfolio Insights. Alpha and beta provide related information on market-sensitive return, and the benchmark comparison chart shows directional performance visually across different market conditions.
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