How do I calculate the Sharpe Ratio?
An example of an AI chatbot conversation about calculating the Sharpe Ratio for investment performance.
How do I calculate the Sharpe Ratio?
To calculate the Sharpe Ratio, you need the average return of your investment, the risk-free rate, and the standard deviation of the investment's returns.
What formula do I use for that?
The formula is: Sharpe Ratio = (Average Return - Risk-Free Rate) / Standard Deviation of Returns.
Can you give me an example with numbers?
Sure! If your investment has an average return of 10%, a risk-free rate of 2%, and a standard deviation of 5%, the Sharpe Ratio would be (10% - 2%) / 5% = 1.6.
What does a Sharpe Ratio of 1.6 indicate?
A Sharpe Ratio of 1.6 indicates that your investment has a good risk-adjusted return, meaning it's providing a decent return for the level of risk taken.
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