What is the Sharpe Ratio?
An example of an AI chatbot conversation about the Sharpe Ratio in finance.
Can you explain what the Sharpe Ratio is?
The Sharpe Ratio is a measure of risk-adjusted return, indicating how much excess return you receive for the extra volatility.
How is it calculated?
It's calculated by subtracting the risk-free rate from the portfolio return and then dividing by the standard deviation of the portfolio's excess return.
What does a higher Sharpe Ratio mean?
A higher Sharpe Ratio indicates a more attractive risk-adjusted return, meaning you're getting more return for each unit of risk.
Can you give me an example of how to use it?
Sure! If a portfolio has a 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.
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