Downside Deviation is a measure of the risk of not achieving a Minimum Acceptable Return (MAR). Downside Deviation is similar to standard deviation in concept and calculation. Standard Deviation measures positive and negative variations about the mean value; however, Downside Deviation measures only variations that fall below the MAR threshold value. In effect Downside Deviation distinguishes downside (bad) variation from upside variation and tracks only the downside component.
Calculation of the Downside Deviation involves taking the root mean square of the negative difference between the MAR and the data points over a specified period.
