Re: Sharpe Ratio

[Bob Fulks <bfulks@xxxxxxxxxxxx>]

At 11:17 AM +0000 12/8/02, spiracom@xxxxxxx wrote:

>What exactly do you want to do?
>If it is to simply find the Sharpe ratio of your returns then the following
>should be done;
>
>Take 12 month period for example.
>for each month take the "net realised profit" and divide it by the "starting
>capital" of the month to get the % return for each month.
>Calc the Std Dev of these monthly returns over the year "=STDEVPA
>(month1,month2...month12)"
>Calc annual return by taking ((1+month1%)*(1+month2%)*....*(1+month12%))-1
>Now find the risk free rate of return (e.g. 90day T-bill return over the
>period for $)
>
>Sharpe Ratio =(annual return - risk free return)/Std Dev of returns
>
>It is easily implemented in Excel

You forgot a factor.

Sharpe Ratio =(annual_return - risk_free_return) /
               SQRT(12) * standard_deviation_of-monthly_returns

Bob Fulks