Risk Adjusted return measures - SHARPE RATIO, TREYNOR RATIO.
Sharpe Ratio
Reward to Risk Ratio
How much Risk We take ?
How much returns did the scheme Deliver?
Rp = Portfolio Return, Rf = Risk Free Return
Denominator = SD of Portfolio
Risk free return is 5%, and a scheme with standard deviation of 0.5 earned a return of 7%
Rp-Rf = 7% - 5% 2%
Standard Deviation of portfolio = 0.5
Sharpe Ratio = 2 / 0.5 = 4
What does it mean?
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