Usage
Martin recommends his index as a measure of risk in various contexts where usually the standard deviation (SD) is used for that purpose. For example the Sharpe ratio, which rates an investment's excess return (return above a safe cash rate) against risk, is
The ulcer index can replace the SD to make an ulcer performance index (UPI) or Martin ratio,
In both cases annualized rates of return would be used (net of costs, inclusive of dividend reinvestment, etc.).
The index can also be charted over time and used as a kind of technical analysis indicator, to show stocks going into ulcer-forming territory (for one's chosen time-frame), or to compare volatility in different stocks. As with the Sharpe Ratio, a higher value is better than a lower value (investors prefer more return for less risk).
Read more about this topic: Ulcer Index
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