Sharpe Ratio is a measure of the risk-adjusted return of an investment. It is desirable to have a high Sharpe Ratio, as this indicates more return for a given amount of risk.
When calculating the Sharpe Ratio of an investment the simple monthly returns over the specified comparison period are calculated. The simple monthly return is:
Return = (End_price + Dist_per_share - Start_price) / Start_price
The returns for the investment over the complete comparison period are calculated. If the comparison period is 5 years, there are 60 monthly returns calculated. The Sharpe Ratio is calculated using the formula:
where r represents the simple monthly returns of the investment, and f represents a monthly risk-free return. When calculating returns your current interpolation range preferences are used. If sufficient pricing data is not available the Sharpe Ratio will not be reported.
The Sharpe Ratio for a portfolio, asset type, goal, or investment type is determined by calculating returns from a weighted average of the investments in that group. The weighting is based on the ending value.
Fund Manager can output the data points used in this calculation to a log file. By default the logging feature is turned off. To turn it on, create a new registry string value at:
HKEY_CURRENT_USER\Software\Beiley Software\Fund Manager\CurrentVersion\techanal
named "benchmarklog" and set it to a value of "1". When calculating the Sharpe Ratio for an investment the log file is named "sharpe_log.txt". When calculating the Sharpe Ratio for a sub-portfolio the log file is named "sharpe_port_log.txt". Each of these logs will be located in your Application Data\Fund Manager folder.