How do I calculate the Sharpe Ratio?
An example of an AI chatbot conversation about calculating the Sharpe Ratio.
How do I calculate the Sharpe Ratio?
To calculate the Sharpe Ratio, you need the return of the 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 = (Return of the investment - Risk-free rate) / Standard deviation of the investment's returns.
Can you give me an example?
Sure! If your investment return is 10%, the risk-free rate is 2%, and the standard deviation is 5%, the Sharpe Ratio would be (10% - 2%) / 5% = 1.6.
What does a Sharpe Ratio of 1.6 mean?
A Sharpe Ratio of 1.6 indicates that the investment has a good risk-adjusted return, meaning it's earning more return per unit of risk.
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