Sharpe Ratio v/s Returns
Introduction
Are your investments worth the risk?
This email shows the graph of how much returns your asset classes are giving when compared to the Sharpe Ratio.
As a general benchmark, the 12 month Sharpe Ratio for the S&P 500 Index (as of August 2018) is 1.34.
- Sharpe Ratio (Y-axis): The Sharpe ratio is defined as the average return earned in excess of the risk-free rate per unit of volatility or total risk.
- Subtracting the risk-free rate from the mean return, the performance associated with risk-taking activities can be isolated.
- Example: U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero.
- The risk free rate applied to the above calculations is 2%.
- Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.
- Subtracting the risk-free rate from the mean return, the performance associated with risk-taking activities can be isolated.
- Returns (X-axis): Percentage Return (defined as Distributions + MTM gains divided by invested amount) for that particular security.
- Asset Class (Colour of the bubbles):
- Alternatives
- Bond Portfolios
- Equity Portfolios
- Fund Portfolios
- Precious Metal
- Private Equity Portfolio
