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Performance Metric
Profit Factor
Profit Factor
Definition
The ratio of total profits to total losses. A profit factor greater than 1 means the portfolio generates more profit than loss. Values above 1.5 are considered good.
Formula
Sum of All Gains / |Sum of All Losses|
Good
> 1.5
Bad
< 1.0
Example
If total gains across all positive months sum to €15,000 and total losses sum to €10,000, the profit factor is 15,000 / 10,000 = 1.5.