In finance, k is a statistical measure used to quantify two concepts: the rate of return growth and the consistency of that growth over a given period. Its calculation takes into account the order of returns, which differs from the popular Sharpe measure. Moreover, it’s also often employed to compare cumulative returns among multiple stocks (and equity managers).

The K-ratio was developed by derivatives trader Lars Kestner as a means of addressing what he saw as a gap in how returns and consistency are analyzed. The metric uses linear regression on the logarithmic cumulative return of a Value-Added Monthly Index (VAMI) curve to determine the slope and standard error of that slope. The slope component represents the return, while the standard error represents the risk.

This metric is particularly useful for comparing cumulative returns of different equities, but it’s not unique and should be evaluated in tandem with other performance metrics to provide a comprehensive picture. It can also be used to evaluate hedge funds, which tend to employ aggressive trading strategies that can lead to significant losses as well as gains. A higher K-ratio is indicative of a hedge fund’s historical consistency, which may bolster its viability as an investment option.

In chess, the letter K stands for King (WK for White and BK for Black). It’s also commonly seen in the CMYK color model as an abbreviation of black ink. On NASDAQ, the letter K indicates that the stock has no voting rights, and it’s sometimes used in the dividend column of stock transaction tables to denote a non-voting share.