# Tag Info

### Should I use an arithmetic or a geometric calculation for the Sharpe Ratio?

The correct answer is "arithmetic mean, because Bill Sharpe says so". He invented the thing, and he's pretty clear on which one he was looking at. If you use the geometric mean, which is lower the ...

### Sharpe Ratio : why the normalization factor?

If you're annualising your data with T it should always be the same, not changing with the length of your data. To demonstrate, annualising monthly returns, the ...

### Sharpe ratio with leveraged ETFs

Probably missing something here but if $X$ has $E(X) = \mu$ and $variance(X) = \sigma^2$ then $2X$ has $E(2X) = 2 \mu, variance(2X) = 4\sigma^2$. Thus the sharp ratio defined as $\frac{\mu}{\sigma}$ ...
Accepted

### Is this a poorly written example, or could volatility in fact be negative?

You seem to use the term "volatility" to describe two very different quantities: (1) the diffusion coefficient of your SDE and (2) the standard deviation of the log-returns under your modelling ...
Accepted

### Sharpe ratio: discrete or continuous returns?

For client reporting purposes, it is customary to use discrete returns. For backtesting, it pretty much make no difference.
Accepted

### Sharpe Ratio of ETFs in R

try: library(PerformanceAnalytics) SharpeRatio.annualized(Returns, Rf = 0.05, scale = 252, geometric = TRUE)

### Logic behind sharpe ratio

Another intuitive interpretation of the Sharpe ratio is as a signal-to-noise ratio: $$\frac{\mu}{\sigma}$$ where you compare the strength of the signal (= return) to the level of noise (= risk). The ...
Accepted

### 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 ...
Accepted

### 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 ...
Accepted

### 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 ...