Re: Sharpe Ratio

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In Reply to: Re: Sharpe Ratio posted by Robert J. Karp on January 13, 1999 at 08:42:38:

: : : I think it would be wonderful if a future version of Fund Manager could calculate and display in a report the Sharpe Ratio for the funds in one's portfolio. Having just learned how to do this manually, it would appear that all of the data necessary to make this calculation is stored within Fund Manager with the exception of a "risk free" return assumption. FM could simply make such an assumption (e.g., 5%) or allow the user to specify a rate of his/her own choosing (possibly as an additional option or preference like the intervals one now specifies for moving average graphs, or asset allocation categories, etc.). What do you think?

: : What is the Sharpe Ratio?

: : Thanks,
: : Mark

: The Sharpe Ratio is a measure of the risk-adjusted return of an investment. It was derived by Prof. William Sharpe, now at Stanford University who was one of three economists who received the Nobel Prize in Economics in 1990 for their contributions to what is now called "Modern Portfolio Theory". I found dozens of sites that explain the Sharpe Ratio in great detail. One that I used to make the calculation manually is "http://www.venus.it/homes/ik2hlb/sr.htm" but, again, you'll find dozens with a Yahoo or Alta Vista search.

: I must apologize -- I just assumed everyone was familiar with the Sharpe Ratio. Personally, it is the most important performance measure to me and I do not invest in a mutual fund without knowing how its Sharpe Ratio compares to others in the same category, and to the market overall. To my mind, the Sharpe Ratio tells one exactly how risky an investment is and how well one is rewarded for taking the risk all in one convenient number. Let me know what you think after your reading .

Thanks for the explanation. It is something that could be added to the custom report. I'll read up on it.

Thanks,
Mark

Replies:

• Re: Sharpe Ratio Charalambos Macheras 13:47:07 1/13/99 (0)