I am trying to compute a Sharpe ratio for a portfolio spanning over 20 years. I have daily data for the portfolio, as well as the yield of CH10Yr (10 year bond in Switzerland, downloaded from Thomson Reuters).
The latter looks like this :
If I want to compute the risk free rate for, say 2016, do I compute the average yield of 2016 and then divide by 252 (since it is daily data)? Or do I have to divide by 10, because it's the 10 year bond? And then for the Sharpe ratio, is it correct to take out the above-computed daily risk free rate from the portfolio daily return (and then divide it by std)?
Thanks for the help.
PS: I'm relatively new, if something is unclear, please tell me. I will do my best to clarify it.