{"id":111244,"date":"2021-02-27T13:50:53","date_gmt":"2021-02-27T08:20:53","guid":{"rendered":"https:\/\/www.vskills.in\/certification\/tutorial\/?page_id=111244"},"modified":"2024-04-12T14:31:24","modified_gmt":"2024-04-12T09:01:24","slug":"sharpe-ratio","status":"publish","type":"page","link":"https:\/\/www.vskills.in\/certification\/tutorial\/sharpe-ratio\/","title":{"rendered":"Sharpe Ratio"},"content":{"rendered":"\n<p>The Sharpe measure: This is a ratio of one\u2019s portfolio\u2019s excess return divided by the portfolio\u2019s standard deviation. The portfolio\u2019s excess return is found by subtracting the risk-free rate from the amount of the portfolio\u2019s actual return. The risk-free rate is considered by most&nbsp;investors as the amount of return one receives on a 6 or 12 month Treasury bill. Because these bills are default free and since their return is nearly guaranteed, they are considered a proxy for the risk-free rate or the benchmark over which all other financial or real&nbsp;assets&nbsp;are compared.<\/p>\n\n\n\n<p>The difference between an asset\u2019s return and the risk-free rate is called the risk premium, or excess return. The Sharpe measure is calculated as follows.<\/p>\n\n\n\n<p>SI = (Rt \u2013 Rf)\/\u03c3f<\/p>\n\n\n\n<p>Where,<\/p>\n\n\n\n<p>SI = Sharpe\u2019s Index<\/p>\n\n\n\n<p>Rt = Average return on portfolio<\/p>\n\n\n\n<p>Rf = Risk free return<\/p>\n\n\n\n<p>of = Standard deviation of the portfolio return.<\/p>\n\n\n\n<p>The Sharpe measure is found by dividing the portfolio risk premium, or the return on the portfolio minus the risk-free rate, by the standard deviation of the portfolio.<\/p>\n\n\n\n<p>An asset\u2019s Sharpe measure in isolation means little. It must be measured against the market\u2019s Sharpe measure. The market Sharpe measure is calculated the same way, by dividing the market risk premium, or the return on the market minus the risk-free rate by the standard deviation of the market. If the asset\u2019s Sharpe measure is greater than the market\u2019s Sharpe measure, the asset has outperformed on a risk-adjusted basis.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Apply for Hedge Fund Certification!<\/strong><\/h3>\n\n\n\n<p><a href=\"https:\/\/www.vskills.in\/certification\/certified-hedge-fund-manager\">https:\/\/www.vskills.in\/certification\/certified-hedge-fund-manager<\/a><\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><a href=\"https:\/\/www.vskills.in\/certification\/tutorial\/certified-hedge-fund-manager\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Back to Tutorials<\/strong><\/a><\/h4>\n","protected":false},"excerpt":{"rendered":"<p>The Sharpe measure: This is a ratio of one\u2019s portfolio\u2019s excess return divided by the portfolio\u2019s standard deviation. The portfolio\u2019s excess return is found by subtracting the risk-free rate from the amount of the portfolio\u2019s actual return. The risk-free rate is considered by most&nbsp;investors as the amount of return one receives on a 6 or&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-111244","page","type-page","status-publish","hentry"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Sharpe Ratio - Tutorial<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.vskills.in\/certification\/tutorial\/sharpe-ratio\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Sharpe Ratio - Tutorial\" \/>\n<meta property=\"og:description\" content=\"The Sharpe measure: This is a ratio of one\u2019s portfolio\u2019s excess return divided by the portfolio\u2019s standard deviation. The portfolio\u2019s excess return is found by subtracting the risk-free rate from the amount of the portfolio\u2019s actual return. 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