What are some examples of the Sharpe Ratio in investing?
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What are some examples of the Sharpe Ratio in investing?
The Sharpe Ratio measures risk-adjusted return. For example, if an investment has a return of 10% and a risk-free rate of 2% with a standard deviation of 5%, the Sharpe Ratio would be (10%-2%)/5% = 1.6.
Can you give me another example?
Sure! If a portfolio returns 15% with a risk-free rate of 3% and a standard deviation of 10%, the Sharpe Ratio would be (15%-3%)/10% = 1.2.
What does a higher Sharpe Ratio indicate?
A higher Sharpe Ratio indicates better risk-adjusted performance. It means you're getting more return for each unit of risk taken.
How can I improve my Sharpe Ratio?
You can improve your Sharpe Ratio by increasing returns, reducing volatility, or both. Diversifying your portfolio can help reduce risk.
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