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I am trying to calculate the Sharpe ratio of monthly returns of 5 years for a mutual fund. My process so far has been as follows:

  1. Calculate the excess monthly returns ie take each months returns and subtract the monthly risk free rate (used Fed Funds rate at start of month divided by 12)
  2. I then took the std dev of these monthly returns and got to 4.59
  3. I then divided 1 by 2 and multiplied by sqrt 12
  4. My answer came out as 0.50 which does not seem correct to me

I am still early on my journey with this stuff does anyone perhaps have any pointers as to where I went wrong?

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    $\begingroup$ A 0.50 Sharpe Ratio for a mutual fund seems plausible to me. The process you describe seems correct. A monthly standard deviation of 4.59 percent (corresponding to 15.9 percent a year) seems plausible also for a cautious, diversified equity MF. What causes you to disbelieve the results? $\endgroup$
    – nbbo2
    Commented Aug 15 at 14:56

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