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I just returned from the Market Technicians Association annual
conference where Bob Fulks gave an excellent presentation on calculating
the Sharpe Ratio. If you ever get a chance to hear him speak I would
highly recommend doing so.
Duke Jones, CMT
Longboat Global Advisors, LLC
www.longboatglobal.com
www.sectorrotationfund.com
-----Original Message-----
From: Bob Fulks [mailto:bfulks@xxxxxxxxxxxx]
Sent: Sunday, May 16, 2004 9:03 PM
To: Tony
Cc: omega-list@xxxxxxxxxx
Subject: Re: Sharpe Ratio for Excel
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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