Calculation formula:
Where E(Rp): the expected rate of return of the portfolio.
Rf: risk-free interest rate
σp: standard deviation of portfolio
The Sharp Index represents that every time an investor takes an extra risk, he can get some extra returns. If it is positive, it means that the fund's rate of return is higher than the risk of fluctuation; If it is negative, it means that the risk of fund operation is greater than the rate of return. So the Sharp index is excellent.
Extended data:
Pay attention to this question:
Problems needing attention in the application of Sharp ratio Although the calculation of Sharp ratio is simple, we should pay attention to the applicability of Sharp ratio in specific applications:
The standard deviation of 1. is used to adjust the risk of return, and the implicit assumption is that the portfolio under investigation constitutes all the investments of investors. Therefore, the Sharp ratio can only be used as an important basis for considering buying a certain fund among many funds.
2. It is also considered inappropriate to use standard deviation as a risk indicator.
3. The effectiveness of Sharp ratio also depends on the assumption that you can borrow at the same risk-free interest rate;
4. Sharp ratio has no benchmark, so its size itself is meaningless, and it is only valuable when compared with other combinations;
5. Sharp ratio is linear, but on the effective frontier, the conversion between risk and return is not linear. Therefore, the Sharp Index is biased in measuring the performance of funds with large standard deviation;
6. Sharp ratio does not consider the correlation between combinations, so there is a big problem in constructing combinations simply according to Sharp value;
7. Sharp ratio, like many other indicators, measures the historical performance of the fund, so it is impossible to simply conduct future operations based on the historical performance of the fund.
8. In calculation, there is another stability problem of Sharp Index: the calculation result of Sharp Index is related to the choice of time span and time interval of income calculation.
Baidu Encyclopedia-Sharp Ratio