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Username: ForexGuy Rating:  Asked to: Jacob Rogers Date Created: 14 Apr 2018 |
| Category | 28 |
| Tag | Financial |
| Question | What is the 'Sharpe Ratio'? |
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Hi ForexGuy, The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return, the performance associated with risk-taking activities can be isolated. One intuition of this calculation is that a portfolio engaging in “zero risk” investment, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return. The Sharpe Ratio was developed by Nobel laureate William F. Sharpe. |
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