# Meaning of Sharpe Ratio

1539

Hello guys,

Does anyone know the meaning of Sharpe Ratio ??

According to the help:

• Sharpe Ratio — this ratio characterizes efficiency and stability of a strategy. It reflects the ratio of the arithmetical mean profit for the position holding time to the standard deviation from it. Plus to that, it accounts for the risk-free rate which is the profit on a certain deposited amount of money;
•

Ok ... but what is the real meaning of dividing the arithmetical mean profit by its standard deviation ? It's just results in arithmetical mean profit expressed in numbers of stddev  ...

I can't figure out what this value is measuring.

If someone could explain, I would be very grateful.

Thanks.

Jin

5051

It is a variation of "Return" divided by "Risk". You can check out this video on youtube for detailed info: https://www.youtube.com/watch?v=uOoYKaPqtH4

RAPMs are variations of: return per unit of risk. Treynor and Sharpe are similar: both are excess return per unit of risk. Treynor defines risk as systematic...
1539

waterhorse:

It is a variation of "Return" divided by "Risk". You can check out this video on youtube for detailed info: https://www.youtube.com/watch?v=uOoYKaPqtH4

I get it !!!  It's a measure that allows to compare results based on both, return and risk.  The higher, the better.

Thanks a lot waterhorse !!!

120

Does anyone know how this is actually calculated in the history reports?

Thanks

George