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Topic: Sharpe ratio

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Sortino ratio

Modern portfolio theory

Capital asset pricing model

Arbitrage pricing theory

Portfolio (finance)

Beta coefficient

William Forsyth Sharpe

Value at risk

Systematic risk

William Sharpe

Standard deviation

Specific risk

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Expected return

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	Sharpe ratio - Wikipedia, the free encyclopedia
		The Sharpe ratio is a measure of risk-adjusted performance of an investment asset, or a trading strategy.
		Sharpe ratios, along with Treynor ratios and Jensen's alphas are often used to rank the performance of portfolio or mutual fund managers.
		Sharpe originally called it the "reward-to-variability" ratio before it began being called the Sharpe Ratio by later academics and financial professionals.
	en.wikipedia.org /wiki/Sharpe_ratio (307 words)

	Sharpe ratio definition sharpe ratio
		Although the Sharpe ratio is frequently presented in simplified form as a single value, understanding it’s unsolved construction may provide additional insight.
		The implication of this arrangement is that the Sharpe ratio is a measurement of return per unit of risk.
		It is for this reason that an investment’s Sharpe ratio is generally considered to be improving as its value increases, and vice versa.
	www.hedgeco.net /sharpe-ratio.htm (1296 words)

	Improving the Sharpe Ratio
		Central to the usefulness of the Sharpe Ratio is the fact that a differential return represents the result of a zero-investment strategy.
		The traditional Sharpe ratio enables us to choose reliably between two or more alternative investments, provided the returns to the assets in question are normally distributed and uncorrelated with the returns to our institution's existing portfolio: we simply pick the alternative with the higher Sharpe ratio.
		The Sharpe rule proposed here is superior to the traditional Sharpe ratio because it is valid regardless of the correlations of the investments being considered with the rest of our portfolio.
	www.fenews.com /fen15/improving.html (1097 words)

	The Sharpe Ratio
		Sharpe [1992] uses a procedure termed style analysis to select a mix of asset class index funds that have a "style" similar to that of the fund.
		In the original applications of the ratio, where the benchmark is taken to be a one- period riskless asset, the differential return represents the payoff from a unit investment in the fund, financed by borrowing.
		If strategy X has a positive Sharpe Ratio that is twice as large as that of strategy Y, twice as much risk should be taken with X as with Y. The overall scale of all the positions should, in turn, be proportional to the investor's risk tolerance.
	www.stanford.edu /~wfsharpe/art/sr/sr.htm (5543 words)

	Sortino ratio Definition
		A variation of the Sharpe ratio which differentiates harmful volatility from volatility in general by replacing standard deviation with downside deviation in the denominator.
		Thus the Sortino Ratio is calculated by subtracting the risk free rate from the return of the portfolio and then dividing by the downside deviation.
		This ratio allows investors to assess risk in a better manner than simply looking at excess returns to total volatility, since such a measure does not consider how often the price of the security rises as opposed to how often it falls.
	www.investorwords.com /5793/Sortino_ratio.html (135 words)

	Sharpe ratio
		A very simple case of this is where the benchmark is a risk free investment, in which case the Sharpe ratio is the excess return on the portfolio divided by the standard deviation of the return on the portfolio.
		The Sharpe ratio is interesting because it is a measure of the relationship between risk and return, a concept that is central to financial theory.
		One useful property of the Sharpe ratio is that the Sharpe ratio of a portfolio does not depend on the time over which it is measured.
	moneyterms.co.uk /sharpe-ratio (210 words)

	RiskMetrics Group - Managing Risk - Lesson: Sharpe ratio as performance benchmark
		Sharpe ratios are easy to calculate and can be used to compare the performance of a variety of different asset classes, or businesses.
		Sharpe ratio measurement can be integrated into the overall business performance evaluation cycle of goal setting, monitoring, and evaluation.
		Although fixed Sharpe Ratio targets are useful for planning purposes and set a clear return on risk objective, it's best to define a dynamic Sharpe ratio benchmark (for example, the Sharpe ratio of an index of hedge funds) for evaluating performance.
	www.riskmetrics.com /courses/managing_risk/sharperatio.html (385 words)

	Hedge Fund Consistency Index, Hedge Funds Research
		We show that the maximum Sharpe ratio obtained via the Markowitz optimization procedure from a sample of returns on a number of risky assets is, under commonly satisfied assumptions, biased upwards for the population value.
		Sharpe's (1966) portfolio performance ratio, the ratio of the portfolio's expected return to its standard deviation, is a very well known tool for comparing portfolios.
		However, due to the presence of random denominators in the definition of the ratio, the sampling distribution of the Sharpe ratio is somewhat difficult to determine.
	www.hedgefund-index.com /s_sharpe.asp (2492 words)

	FPA Journal - Past Issues & Articles - 2003 Issue - January Issue - Article 11
		We find the Sharpe ratio frequently leads to reverse rank ordering when compared with the alternative performance measures, and thus may lead to the false belief that dollar-cost averaging is the most efficient investing style.
		Using the Sortino ratio, lump-sum investing is the preferred investing strategy for all asset classes with the exception of government bonds, whereas the UPR ranks value averaging as the preferred investing strategy for all assets with the exception of small-cap stocks.
		Whereas the Sharpe ratio looks at excess returns over the risk-free rate, the more restrictive UPR assumes that the returns of most interest to investors are those that exceed the average return for the asset classification.
	www.fpanet.org /journal/articles/2003_Issues/jfp0103-art11.cfm (2874 words)

	Morningstar's Performance Measures: Sharpe Ratios
		In this case, the correlation coefficient for the Sharpe ratios themselves was 0.995, while that for the percentiles was 0.997.
		As described in William F. Sharpe, The Sharpe Ratio, (The Journal of Portfolio Management, Fall 1994), a Sharpe Ratio is a measure of the expected return per unit of standard deviation of return for a zero-investment strategy.
		The average Sharpe ratio for the funds with the smallest expense ratios was over 75% greater than that of the funds with the greatest expense ratios.
	www.stanford.edu /~wfsharpe/art/stars/stars6.htm (2402 words)

	Sharpening the Sharpe Ratio: Advisers have relied on the Sharpe ratio as a valuable analytical tool. With the market's ...
		Devised by William Sharpe, a Nobel-winning economics professor, it is calculated by dividing the excess return of an asset by its standard deviation of return.
		Fundamentally, the Sharpe ratio is a measure that attempts to calculate the amount of "reward per unit of risk" of an investment.
		In Figure 2, the Sharpe ratio of Asset B is larger than that of Asset A (recall that a smaller negative is a larger number).
	www.financial-planning.com /pubs/fp/20030101012.html (1329 words)

	The Sharpe Ratio
		William Sharpe, now at of Stanford University who was one of three economist who received the Nobel Prize in Economics in 1990 for their contributions to what is now called "Modern Portfolio Theory".
		Conclusions The Sharpe Ratio, which is a reward to risk ratio, is independent of the leverage we use so long as the standard deviation is small.
		Understanding the Sharpe Ratio of your trading system is fundamental to understanding the risk involved in trading it.
	www.miapavia.com /homes/ik2hlb/sr.htm (1872 words)

	Geometry of Risk and Reward 3
		By definition, the Sharpe ratio of a portfolio is the ratio of its expected reward to its scalar risk.
		It follows that the Sharpe ratio is a scaled cosine of the angle between the fund's risk vector and the Sharpe axis.
		And of course C, with Sharpe ratio 0.00, is outside the cone.
	www.dacor.net /norton/finance-math/grr/grr3.html (726 words)

	Heard on the Street: Sharpe's risk gauge is misused (Site not responding. Last check: 2007-09-10)
		The higher the Sharpe Ratio, the better a fund is expected to perform over the long term.
		Her problem with the Sharpe Ratio is that it assumes that a fund's returns will remain even over time.
		That is similar to the Sharpe Ratio, but instead of using the standard deviation as the denominator, it uses downside deviation -- the amount a portfolio strays from its average downturn -- to distinguish between "good" and "bad" volatility.
	www.post-gazette.com /pg/05243/563079.stm (1032 words)

	THE SHARPE RATIO
		The Sharpe Ratio is a measure of the risk-adjusted return of an investment.
		Sharpe Ratio = 33% / 16.62% = 1.99 which is the same as above.
		The Sharpe Ratio, which is a reward to risk ratio, is independent of the leverage we use so long as the standard deviation is small.
	www.bfulks.com (1864 words)

	CQF.info :: View topic - Is Sharpe ratio a good measure of investment performance?
		Although Sharpe ratio is the most commonly used measure for risk-djusted returns, it's got a few features that don't allow it to be a subjectively or statistically good measure of risk.
		As it is easy to see from the formula, in terms of the Sharpe ratio a fund will be penalised for one month's high return although in the opinion of many investors the possibility of getting infrequent excess returns is a positive factor.
		In a strict sense, Sharpe ratio should be considered as a measure of performace of a fund manager rather than a predictor of the future return distribution.
	www.cqf.info /forum/viewtopic.php?p=3439 (1456 words)

	Sortino Ratio vs Sharpe Ratio : Calculating Sortino Ratio
		The formula for the Sharpe Ratio is return minus the risk free rate divided by standard deviation.
		In accordance with the description above, the Sharpe Ratio is therefore using a non directionally-biased measurement of volatility to adjust for risk.
		Although both the ratios are measurements of return-to-risk, understanding the distinctions of each may provide insight into their unique drawbacks.
	www.hedgeco.net /sharpe-ratio-sortino-ratio.htm (390 words)

	Sharpe's Rifles (1993) (TV) (Site not responding. Last check: 2007-09-10)
		Sharpe is without doubt one of the biggest achievements of British TV drama.
		Sharpe has it's basis in reality most characters were real people Wellington etc, it takes in real events such as the battle of talevera and the weaponry, uniforms etc are accurate.
		Sharpe is great TV entertainment and a nice change of pace from the reality TV hell we seem to be stuck in at present.
	us.imdb.com /title/tt0108108 (481 words)

	not too sharpe about ratios \| Ask MetaFilter
		If the fund return is greater than the risk free return then the Sharpe ratio must be positive (standard deviations are always positive).
		It wouldn't be suprising if you got negative ratios for a hedge fund, given the volitility of their returns.
		Depending on what the fund is doing, the Sharpe ratio is probably going to be a really poor measure of a risk/reward tradeoff, since the underlying distribution of the return series is likely going to be asymmetric.
	ask.metafilter.com /mefi/34349 (1522 words)

	Mahalanobis
		The first one, the Sharpe ratio, was introduced by Sharpe (1966).
		The denominator of this ratio is therefore the fund's tracking-error.
		Using the ranking drawn from the modified information ratio, a coherent relationship appears between excess return, tracking error and ranking, which is not the case without the modification.
	mahalanobis.twoday.net /stories/1164672 (403 words)

	Chris Brown's Football Talk and Chalk: Sharpe Ratio - Part II
		There is an interesting application of the Sharpe ratio for what are termed "uncorrelated strategies." Basically, it says that if you have two uncorrelated strategies, and you want to know how much to use one versus the other, you can use the ratio of their Sharpe ratios.
		As always, the Sharpe ratio is an indicator telling us where to look, but not necessarily giving us the solutions--this is what being a coach is all about.
		Here, if the Sharpe was higher for the right side we might study the gamefilm sooner and see that they are weak at defensive end.
	sky.prohosting.com /cbbrown/2005/05/sharpe-ratio-part-ii.html (911 words)

	Sharpe, Treynor, Jensen
		This ratio measures the return earned in excess of the risk free rate (normally Treasury instruments) on a portfolio to the portfolio's total risk as measured by the standard deviation in its returns over the measurement period.
		The Sharpe ratio is an appropriate measure of performance for an overall portfolio particularly when it is compared to another portfolio, or another index such as the SandP 500, Small Cap index, etc.
		It's also known as the Reward to Volatility Ratio, it is the ratio of a fund's average excess return to the fund's beta.
	www.efmoody.com /investments/sharperatio.html (599 words)

	Sharpe Ratio
		The higher the Sharpe Ratio, the more sufficient are returns for each unit of risk.
		It is calculated by first subtracting the risk free rate from the return of the portfolio, then dividing by the standard deviation of the portfolio.
		Using Sharpe ratios to compare and select among investment alternatives can be difficult because the measure of risk, portfolio standard deviation, penalizes portfolios for positive upside returns as much as the undesirable downside returns.
	www.russell.com /US/glossary/analytics/sharpe_ratio.htm (102 words)

	Fool.com: A Sharpe Ratio Summary [Workshop] November 28, 2000
		However, an investor should be aware of the shortcomings of the Sharpe Ratio when applying it to their own investment decisions.
		The Sharpe Ratio is calculated by comparing the returns of an investment strategy to a "risk-free" investment.
		The Sharpe Ratio is normally calculated by taking the average annual returns of an investment strategy and comparing them to a "risk-free" investment.
	www.fool.com /workshop/2000/workshop001128.htm (812 words)

	Sharpe Ratio
		The Sharpe Ratio goes further: it actually helps you find the best possible proportion of these securities to use, in a portfolio that can also contain cash.
		The Sharpe Ratio is a direct measure of reward-to-risk.
		The slope of this line is equal to the Sharpe Ratio of x.
	www.moneychimp.com /articles/risk/sharpe_ratio.htm (286 words)

	Primary Assets Management - Statistical Investment Definitions
		Sharpe Ratio - A return/risk measure developed by William Sharpe.
		Sortino Ratio - This is another return/risk ratio developed by Frank Sortino.
		Sterling Ratio - This is a return/risk ratio.
	www.treasuries.com /cta_stats.htm (692 words)

	Using Sharpe ratio for MF investing
		This is a ratio that compares the mutual fund returns with a benchmark return.
		The Sharpe ratio for `A' is 0.5 ([17.5-10]/15) whereas it is just 0.29 for `B' ([20-10]/35).
		The Sharpe ratio, however, shows that `B' assumed a far higher risk to generate a return of 2.5 per cent more than `A'.
	www.thehindubusinessline.com /iw/2001/01/21/stories/0721g151.htm (376 words)

	Re: Sharpe Ratio
		The issue of symmetry — that market participants need to be able to lend and borrow at the risk-free rate — becomes important if you are employing Sharpe’s ratio within the larger context of portfolio theory.
		Sharpe’s ratio is just a metric of risk-adjusted performance, and as such, you can define it based upon whatever risk-free rate you find convenient.
		However, if you are going to use Sharpe’s ratio within the broader context of portfolio theory, consistency requires that it reasonably reflect a risk-free rate at which market participants can borrow and lend.
	www.contingencyanalysis.com /archive/archive01-3/000001da.htm (224 words)

	Performance Analysis
		Graphically, the Sharpe Ratio is the slope of a line between the riskfree rate and the portfolio in the mean/volatility space.
		The Sharpe Ration is closely related to the t-statistic for measuring the statistical significance of the mean excess return.
		In mean/beta-space, the Treynor Ratio is graphically represented by the line between the riskfree rate and the portfolio.
	www.performanceanalysis.freeservers.com /external/index.html (1078 words)

	RiskMetrics Group - Managing Risk - Lesson: Sharpe ratio for measuring return on risk
		One standard measure of return on risk is the Sharpe ratio, named after Nobel Laureate professor William F. Sharpe.
		Sharpe ratio analysis can be applied on different levels, from analyzing a single transaction to evaluating an entire business or asset class.
		Historical Sharpe ratios over long periods of time for most major asset classes have ranged from.3 to 2.
	www.riskmetrics.com /courses/managing_risk/sharpe.html (245 words)

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