Sharpe ratio
(redirected from Sharpe ratios)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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.