Sharpe Ratio

Discussion in 'Trading' started by virgin, Aug 31, 2001.

  1. virgin

    virgin

    What is the exact definition of this ratio ?
    What is considered as less the average,
    average an above average ?
    What other ratio's are considered as im-
    portant in achieving a certain % performance
    in the Hedge Fund Business ?



    Regards,
    Virgin.
     
  2. tymjr

    tymjr

    Virgin: ”What is the exact definition of this ratio?”

    The Sharpe ratio can be calculated as the amount of:

    Excess Returns divided by the Annualized SD of Account Returns (ER / ASDAR)

    Where:

    ER = Annualized Account Return - Risk Free Return (AAR - RFR)

    RFR = A risk free investment such as a T-Bill

    There are more complex methods that may, for instance, alter the SD calculation or use projected returns.