# Tag Info

Let $R$ be a random vector of risky returns and let $r_f$ denote the risk free rate. Let vector of expected returns $\boldsymbol{\mu} = \operatorname{E}[R]$ and covariance matrix $\Sigma = \... 11 votes ### How to calculate Sharpe Ratio from$ returns?

Let's say your cumulative return series is $\{R_i \mid i=0,1,...,N-1\}$ of length $N$ days. There's 3 conventional ways to do this at this stage. You may convert the cumulative dollar return curve ...
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### Maximum Sharpe portfolio (no short selling restrictions)

There are two cases, where short sales are allowed: With riskless lending and borrowing and without. As mentioned in the comments, you just have to solve a linear system. With riskless lending and ...
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### What is the industry standard way of calculating and annualizing performance metrics?

To give you an idea of industry standards for funds (although not hedge-fund specific), Morningstar and Trustnet both use monthly returns and annualize their data. See, for an example plucked at ...
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### Sharpe Ratio and Sortino Question: Standard practice

Theoretically, Sharpe should be the average of (compounded) excess returns divided by the volatility of the same. It was designed to measure the risk-reward preferring the risk asset to riskless. So ...

### What is stopping me from using high leverage on high Sharpe strategies?

Not sure if "3-4 Sharpe" indicates the value of the Sharpe ratio you're earning since such magnitude is meaningless without some benchmark to compare against, due to it being a purely ...
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### Do passive ETF fund managers care about profolio metric such sharpe ratios and sortino ratio?

Portfolio risk metrics matter a lot for all fund managers. Though certain type fund vehicles can have completely different sets of performance metrics. It's hard to imagine a Venture Fund analyzing ...

### Do passive ETF fund managers care about profolio metric such sharpe ratios and sortino ratio?

The Sharpe ratio and the Sortino ratio are not under the control of the ETF managers, they will be equal (or very close) to the ratios for the Index that the ETF tracks. There is not much room for ...
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### How can risk-neutral pricing find the right price for securities if it doesn't account for risk premia?

The price of a derivative does not explicitly depend on the expected return of the underlying, however the price change or return of the derivative depends on the return of the underlying. Hence the ...
First, you do not divide by the variance, but the standard deviation when calculating Sharpe ratios. Secondly, none of them are wrong, but $SR_1$ is the expected Sharpe ratio of the asset you are ...
No, this is not the same. For example, consider the scenario \begin{align*} r_A &= 10\% \quad\quad \sigma_A = 10\% \\ r_B &= 1.5\% \quad\quad \sigma_B = 1\% \\ \end{align*} If $r_f=1\%$, ...