sharpe ratio
Sharpby
1990 William Sharpe, the winner of the nobel prize in economics, started from CAPM (capital asset pricing model), the most important theoretical basis of investment science, and developed the famous Sharpe Ratio, also known as the Sharp Index, to measure the performance of financial assets.
The study of Sharp ratio in modern investment theory shows that the risk plays a fundamental role in determining the performance of portfolio. Risk-adjusted rate of return is a comprehensive index that can consider both income and risk, and can eliminate the adverse effects of risk factors on performance evaluation for a long time. Sharp ratio is one of the three classic indicators that comprehensively consider income and risk.
Calculation formula:
E(Rp)-RfSharpeRatio -
These include:
E(Rp): the expected annualized rate of return of the portfolio.
Rf: annualized risk-free interest rate
Op: standard deviation of annualized rate of return of portfolio
Sharpby
The Sharp Index represents that every time an investor takes an extra risk, he can get some extra returns. If it is greater than 1, it means that the fund's rate of return is higher than the risk of fluctuation; If it is less than 1, it means that the operational risk of the fund is greater than the rate of return. In this way, each portfolio can calculate the Sharp ratio, that is, the ratio of return on investment to more risks. The higher the ratio, the better the portfolio.
For example:
If the yield of national debt is 3%, the expected return of your portfolio is 15%, and the standard deviation of your portfolio is 6%, then use 15% -3% to get 12% (representing the return other than risk-free investment), and then use12%/6.
Give another example:
Suppose there are two funds, A and B. The average annual net growth rate of Fund A is 20%, with a standard deviation of 10%, and that of Fund B is 15%, with a standard deviation of 5% and an average annual risk-free interest rate of 5%. Then, the Sharp ratios of Fund A and Fund B are 65,438+0.5 and 2 respectively. According to the Sharp ratio, the risk-adjusted income of Fund B is better.