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At 09:30 AM 5/16/2004, Tony wrote:
>http://www.laportesoft.com/laportedownload.html
The spreadsheet calculation you referenced is not correct.
They calculated the geometric returns correctly but then simply calculated the standard deviation of the monthly returns without taking into account the compounding.
The correct procedure would use logarithmic returns or also correct the standard deviation for compounding.
The correct Sharpe ratio for their example is about 1.10 using logarithmic returns or 1.16 using geometric returns, not the 1.21 they calculate.
Errors in calculating Sharpe Ratio are very common.
Bob Fulks
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