The Sharpe Ratio is a financial metric that enables investors to evaluate an investment’s return relative to the amount of risk involved. It measures the excess return generated above a risk-free rate per unit of risk, also known as volatility. By considering both return and risk, the Sharpe...
Advantages and Limitations of Sharpe Ratio Lesson Summary Frequently Asked Questions What does the Sharpe ratio tell you? The Sharpe Ratio was introduced by William F. Sharpe as a way to gauge an investment's potential by adjusting for its risk. The higher the Sharpe Ratio, the better the inv...
Why does the Sharpe Ratio matter? The higher the Sharpe ratio is, the more return the investor is getting per unit of risk. The lower the Sharpe ratio is, the more risk the investor is shouldering to earn additional returns. Thus, the Sharpe ratio ultimately 'levels the playing field' amo...
Sharpe ratio is a measure of excess return earned by investment per unit of total risk. It is calculated by dividing excess return (which equals return minus risk free rate) by standard deviation of the investment returns.Investment management requires a trade-off between risk and return. ...
Risk-Adjusted Return Ratios – Sortino Ratio TheSortino ratiois a variation of the Sharpe ratio. It takes a portfolio’s return and divides it by the “Downside Risk.” Downside risk is the volatility of a portfolio’s return below a certain level. The level is based on average returns. ...
Twitter Google Share on Facebook Thesaurus Encyclopedia Related to sharpened:mispronounce sharp·en (shär′pən) tr. & intr.v.sharp·ened,sharp·en·ing,sharp·ens To make or become sharp or sharper. sharp′en·ern. American Heritage® Dictionary of the English Language, Fifth Edition....
The information ratio and theSharpe ratioare similar. Both ratios determine the risk-adjusted returns of a security or portfolio. However, the information ratio measures the risk-adjusted returns relative to a certain benchmark while the Sharpe ratio compares the risk-adjusted returns to the risk-...
Expense ratio is the percentage of a mutual fund’s assets that are used to cover the fund’s operating costs. A lower expense ratio is generally considered favorable for investors as it can maximize their returns. Now, let’s delve deeper into understanding expense ratio and its components: ...
The Sharpe ratio compares the return of an investment with its risk. It's a mathematical expression of the insight that excess returns over a period of time may signify more volatility and risk, rather than investing skill. EconomistWilliam F. Sharpeproposed the Sharpe ratio in 1966 as an out...
IR=Portfolio Return−Benchmark ReturnTracking Errorwhere:IR=Information ratioPortfolio Return=Portfolio return for periodBenchmark Return=Return on fund used as benchmarkTracking Error=Standard deviation of differencebetween portfolio and benchmark returnsIR=Tracking ErrorPortfolio Return−Benchmark Retu...