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Meaning of Sharpe Ratio

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Jin
1539
Jin 2011.02.08 07:21 

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 

    Winsor Hoang
    4916
    Winsor Hoang 2011.02.08 07:41  

    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

    Risk-adjusted performance ratios
    • www.youtube.com
    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...
    Jin
    1539
    Jin 2011.02.08 10:20  
    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 !!!

     

    George Goudinakis
    120
    George Goudinakis 2015.03.10 12:40  

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

    Thanks 

    George

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