Sharpe ratio

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Sharpe ratio

A measure of a portfolio's excess return relative to the total variability of the portfolio. Related: Treynor index. Named after William Sharpe, Nobel Laureate, and developer of the capital asset pricing model.

Sharpe Benchmark

In financial econometrics, a model for a portfolio's performance that attempts to account for a money manager's index-like tendencies. In other words, the Sharpe benchmark attempts to statistically calculate whether a portfolio's success was due to good management or the taking of excessive risk. The model measures a company's or portfolio's performance against a series of securities indices.

Sharpe ratio.

Using the Sharpe ratio is one way to compare the relationship of risk and reward in following different investment strategies, such as emphasizing growth or value investments, or in holding different combinations of investments.

To figure the ratio, the risk-free return is subtracted from the average return of an investment portfolio over a period of time, and the result is divided by the standard deviation of the return.

A strategy with a higher ratio is less risky than one with a lower ratio.

This type of analysis, which is done using sophisticated computer programs, is named for William P. Sharpe, who won the Nobel Prize in economics in 1990.

References in periodicals archive ?
Investors need to use benchmark-independent measures of risk-adjusted return, such as the Sharpe Ratio, Sortino Ratio and Omega Ratio.
The Sharpe ratio for the funds again exceeded the market in terms of 0.
To measure the risk-adjusted performance of bonds with different terms to maturity, we first use the Sharpe ratio, which is defined as the mean of the excess returns over the risk-free rate divided by the standard deviation of the excess returns (Sharpe, 1994).
In the latest Catella Market Tracker Commercial Real Estate Investments in Europe Risk Evaluation in Times of Boom and Uncertainty, an analysis of 28 European real estate locations shows a good basis for long-term yield generation based on the common risk key indicators risk/yield, volatility and Sharpe ratio.
In addition to its outperformance for the third quarter, the Schwab model portfolio was also the least risky, based on its standard deviation and Sharpe ratio for the year ended Sept.
Both for the mean of returns and the volatility-adjusted mean of returns selection criteria, the best performance in terms of Sharpe ratio and maximum drawdown was achieved under the momentum-weighting approach and a 12/0/2 months framework.
For a comprehensive analysis, excess average returns, the alpha, the Sharpe ratio, and cumulative returns were used as performance measures.
Comparison of Sharpe Ratios, 1988-2007 Sharpe ratio Annualized Sharpe ratio of buy-and-hold investor 0.
8 per cent and a good Sharpe ratio (measures the consistency of returns on a five year average basis) of return on capital of 389.
Deviation from normality and Sharpe ratio behavior: A brief simulation study.
Furthermore, Al-Ain Ahlia has shown consistent profitability with a 5 year average combined ratio of 88% contributing to the 5 year average return on capital of over 5% in 2014 and resulting in a sharpe ratio of return on capital (which measures the consistency of returns on a 5 year average
At over $300 million in assets under management, the fund has been providing top decile risk adjusted returns, (based on the fund's Sharpe Ratio compared to EuroHedge league table peers), to investors for more than three years now.