Tag Info

New answers tagged

0

I may not have fully understood your question, but I assume you are asking what will happen on a leverage portfolio over time if the underlying price stays the same. A leveraged portfolio would likely eventually go to zero (and below) simply because of the cost of leverage. At minimum, you are borrowing at the risk-free rate. An ETF would just go to zero.


3

The textbook academic answer is that Sharpe ratio is not impacted by leverage as explained by other answers. However, reality tells a different tale entirely: Imagine you lever up your investments by such amount that your future performance will critically hinge on the following conditions: That those who extended credit to you will not re-call their ...


7

Sharpe ratio is defined as $\frac{(x - r)}{\sigma}$ where $x$ is return, $r$ is the risk free rate and $\sigma$ is volatility. Now levering up $n$ times multiplies both the return and volatility by $n$. But shouldn't the ratio change since $r$ stays the same? Ah, but remember, leverage isn't free. You have to fund leverage, and that cuts out of your return. ...


3

Generally no. Sharpe ratio should vary linearly. Use leverage: the return increases, but so does volatility. De-lever" the return decreases but, so does volatility.



Top 50 recent answers are included