1, detailed description
Sharp ratio is also called Sharp Index-a standardized index for fund performance evaluation. The study of Sharp ratio in modern investment theory shows that the risk plays a fundamental role in determining the performance of portfolio. Risk-adjusted rate of return is a comprehensive index that can consider both income and risk, and can eliminate the adverse effects of risk factors on performance evaluation for a long time.
2. Core concept
Rational investors will choose and hold an effective portfolio, that is, a portfolio that maximizes the expected return at a given risk level or a portfolio that minimizes the risk at a given expected return level. It believes that investors should at least require the return on investment to reach the risk-free return on investment or higher when establishing a risky investment portfolio.
3. Specific use
The Sharp ratio of the fund can be obtained by subtracting the risk-free interest rate from the average value of the fund's net growth rate and then dividing it by the standard deviation of the fund's net growth rate. It reflects the extent to which the net growth rate of unit venture fund exceeds the risk-free rate of return. If Sharp's ratio is positive, it means that the interest rate of bank deposits in the same period is taken as the risk-free interest rate, and investment funds are superior to bank deposits.
In the specific application, we need to pay attention to:
1, Sharpby has no benchmark, so its size itself is meaningless, and it is only valuable when compared with other combinations.
2. Sharp ratio is linear, but on the effective frontier, the conversion between risk and return is not linear. Therefore, the Sharp Index is biased in measuring the performance of funds with large standard deviation.
3. Sharp ratio does not consider the correlation between combinations, so there is a big problem in constructing combinations simply according to Sharp value.
4. Sharp ratio, like many other indicators, measures the historical performance of the fund, so it is impossible to simply conduct future operations based on the historical performance of the fund.