What it measures
The tail ratio compares the size of a strategy's good days with its bad days, ignoring the everyday middle.
Tail ratio = 95th percentile daily return / |5th percentile daily return|
Example
If the 95th percentile day is +2.4% and the 5th percentile day is -2.0%, the tail ratio is 2.4 / 2.0 = 1.2: the strategy's big up days are about 20% larger than its big down days.
Reading it
| Tail ratio | Reading |
|---|---|
| Below 0.8 | Losses in the tails are notably larger than gains |
| 0.8 to 1.2 | Balanced, typical of index funds |
| Above 1.2 | Gains in the tails are larger, like positive Skewness of returns |
It is simpler and more robust than skewness, because a single extreme day cannot dominate it.
See also
- Skewness of returns What skewness means for investment returns, how positive and negative skew differ, and why negatively skewed strategies hide their risk.
- Kurtosis and fat tails What kurtosis measures, why stock returns have fat tails, what excess kurtosis means, and why extreme days happen far more often than a bell curve predicts.
- Win rate and payoff ratio What win rate means for a trading or investing strategy, why a high win rate can still lose money, and how win rate and payoff ratio combine into expectancy.
Last updated September 30, 2026. Education only, not investment advice.