Updated on March 04, 2024Table of Contents
The Sharpe ratio is a measure of risk-adjusted return for an investment or portfolio. It is named after the American economist William Sharpe. The Sharpe ratio is calculated by dividing the annualized return of an investment or portfolio by its standard deviation.
Sharpe Ratio = Annualized Return / Standard Deviation
The Sharpe ratio is a widely used metric in finance, but it should not be the only factor considered when evaluating investments or portfolios. Investors should also consider other factors, such as the investment horizon, the investor’s risk tolerance, and the overall investment strategy.
What is a good Sharpe ratio?
A Sharpe ratio above 1 is generally considered good, with ratios above 2 being excellent and those below 1 indicating lower risk-adjusted returns.
Is a Sharpe ratio of 0.5 good?
A Sharpe ratio of 0.5 is considered below average, suggesting that the risk-adjusted return is not very strong.
What does a Sharpe ratio of 1.5 mean?
A Sharpe ratio of 1.5 means the investment has delivered good risk-adjusted returns, indicating a favorable balance between risk and return.
Is a Sharpe ratio of 1 good?
Yes, a Sharpe ratio of 1 is considered average, meaning the investment is providing fair returns for the level of risk taken.
What does a Sharpe ratio of 0.5 mean?
A Sharpe ratio of 0.5 indicates that the investment’s return is lower relative to the risk, suggesting the performance is subpar on a risk-adjusted basis.
Table of Contents
Categories
Pocketful is an advanced trading platform that empowers traders with cutting-edge technology. We provide innovative tools and resources to make trading more accessible and practical.
