New answers tagged sharpe-ratio
4
I don't know that there is a "standard-solution crystalized in the community," but there are alternatives. The ones that I prefer are Omega, Sortino, and Kappa. All three of these ratios, unlike Sharpe, do not assume normally distributed returns.
Omega Ratio: This is the probability-weighted ratio of gains versus losses for a given minimum acceptable ...
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The formula wants to compare the (expected) return of a risky asset with the (known) return of a risk-free alternative. You need therefore to think of $r_f$ as the return of a risk-free asset.
The easiest way to know you're doing it right is to reconstruct this asset on a spreadsheet. To consider a typical case: if you have per annum risk-free rates posted ...
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