Sharpe Ratio

sharpe_ratio

Function Name: sharpe_ratio

Tags: None

Category: Other

A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate (such as that of the 10-year U.S. Treasury bond in USA or

German government bills or Euribor rates in EU)

from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is:

SR = E(R-Rf)/s(R-Rf),

where: R: asset return,

Rf: return on a benchmark asset, such as the risk free rate of return,

E[R - Rf]: expected value of the excess of the asset return over the benchmark return and

s(R-Rf): standard deviation of the excess of the asset returns

Function usage: sharpe_ratio(Period, RiskFreeReturn, BarsPerYear) where: Period: number of bars to use in analysis. RiskFreeReturn: return on a benchmark asset, such as the risk free rate of return (such as that of the 10-year U.S. Treasury bond in USA or

German government bills or Euribor rates in EU). The value should be given in %, per annum. BarsPerYear: custom number of bars per year. Used only if UseCustomBarsPerYear is set to true. UseCustomBarsPerYear: if true, BarsPerYear parameter is used. Otherwise the value is automatically calculated: 12 for monthly, 52 for weekly, 250 for daily.

Author:   William F. Sharpe

Links:     http://www.stanford.edu/~wfsharpe/art/sr/sr.htm, http://en.wikipedia.org/wiki/Sharpe_ratio, http://www.investopedia.com/terms/s/sharperatio.asp

Parameters

 Period Number of bars to use in analysis Default Value: 100  |  Minimum: 0  |  Maximum: 100000 Type: Numeric RiskFreeReturn in %,  per annum Default Value: 1.2509999999999999  |  Minimum: 0  |  Maximum: 100 Type: Numeric BarsPerYear Used only if UseCustomBarsPerYear set to true, otherwise automatically calculated Default Value: 250  |  Minimum: 12  |  Maximum: 360000 Type: Numeric UseCustomBarsPerYear If true, BarsPerYear parameter is used. Otherwise the value is automatically calculated: 12 for monthly, 52 for weekly, 250 for daily. Default Value: 0 Type: Boolean