![]() ![]() Sharpe ratio is a measure for calculating risk-adjusted return. With this in mind, William Sharpe introduced a simple formula to help compare different portfolios and help us find the most feasible of them all - the Sharpe Ratio. Also, even if two strategies have comparable annual returns, the risk is still an important aspect that needs to be measured.Ī strategy with high annual returns is not necessarily very attractive if it has a high-risk component we generally prefer better risk-adjusted returns over just ‘better returns’. Some strategies might be directional, some market neutral and some might be leveraged which makes annualized return alone a futile measure of performance measurement. The normal answer, i.e., its return, is somewhat narrow in scope and does not help capture the big picture. At the same time, you might develop different strategies to balance various measures such as risk, volatility, expected returns etc.īut how do you say one strategy is better than the one? Hence, we try to build a portfolio consisting of different financial instruments. We all know that you should never put all your eggs in one basket. This blog explains its mechanism and everything that you need to know about it. ![]() Sharpe Ratio helps compare different portfolios and find the most feasible of them all.
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