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 ?
Yet data compiled by ClearBridge Investments shows that portfolios incorporating mid caps have delivered higher returns and consistently higher Sharpe ratios than portfolios consisting solely of large and small cap stocks.
Standard Deviation, Sharpe Ratios and even R-squared are other measures which measure risk of a portfolio which can aid you in finding out how active your manager is but these are probably too detailed for our purposes here.
Farmland is a highly attractive asset class with high Sharpe ratios but at the same time a difficult asset class for most investors to access.
Table 1: Sharpe Ratios (%) for the period 2005-2011_ Asset Class Expected Return SD Sharpe Ratio S&P CNX Nifty 11.
2011] find that including frontier market equities in value- and equal-weighted international portfolios can yield higher Sharpe ratios.
Strategies with zero predicted Sharpe ratios should be ignored.
The Sharpe ratios of both currency strategies are substantially higher than that of the stock market.
The use of Sharpe ratios can likewise facilitate a ranking of investment funds.
Time Variations in the Conditional Volatilities and Sharpe Ratios
Farinelli and Tibiletti (2008) and Zakamouline and Koekebakker (2009) introduce generalized Sharpe ratios to evaluate portfolio performance.
In this scenario, the Sharpe ratios over the period January 2006 through October 2010 were: PFD = .
Nominations are not judged by committee, but by an established methodology based on performance and Sharpe ratios.