The Sharpe Ratio

This video shows how to calculate the Sharpe Ratio.
The Sharpe Ratio measures the reward (excess return) to risk (volatility) of a portfolio. This allows investors to rank portfolios. The Sharpe Ratio is calculated as follows:
Sharpe Ratio = Excess Return of Portfolio / Volatility of Portfolio
The excess return of a portfolio is the expected return of a portfolio minus the risk-free rate.
The Sharpe Ratio is also the number of standard deviations by which the portfolio's return must fall to underperform the risk-free investment.-
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[@patricialim6816]

Probably the most simple explanation of this investment formula. Everyone else out there makes it sound like calculus... thank you!

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I’m still in high school but I just find finance so interesting! Thank you for ur explanation

[@joshuafancher3111]

Thank you. Thoroughly explained.

[@kaiguo3907]

Thank you for sharing such a helpful interpretation of sharp ratio, I am so excited to see more videos from you.

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as always... an amazing video! thank you

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[@grodrigues3]

Didn't watch the video on efficient portfolio's but based on the graph, it looks like the purple part is efficient because taking on more risk yields BETTER reward and and the yellow part is where taking on more risk yields WORSE rewards. Does the yellow section all have a negative sharpe ratio?

[@lukashuber389]

great video!!

[@adokoka]

Very clear explanation. Could you please make a video on the sortino ratio? Many thanks in advance!

[@hazirahashim1904]

volatility does not equal risk. volatility is how much the data disperses from the expected value. risk is the probability that the investor deviates from their expected return. Variance measures volatility & not risk. One of the measures of risk is Standard Deviation.

[@maxmudbekmurodov6938]

The most comprehensive video on youtube) would be even better if you include some specific examples ! Thank you anyway)

[@megawarpig3401]

So the portfolio of risky assets tangent to the CML has the highest Sharpe Ratio. But all the portfolio on the CML have the same Sharpe Ratio, since the slope of the CML is the Sharpe Ratio, correct?
And the points on the CML can be obtained by a combination of the risk-free asset and the tangent portfolio of risky assets, right?

[@juanochoa3972]

Thank you so much for the explanation. Do you have an excel sheet as an example. With daily data?. Rgds and thanks!

[@coachgeflores]

Very informative video. Are you using Geometric or Arithmetic Rates of Return and Standard Deviations?

[@Discovery_and_Change]

Where do we find the volatility of an ETF?
What's it called? Is it labeled as 'volatility' or 'beta' ?

[@douglashurd4356]

How can the dividend yield rate be included in the calculation?
Is it reasonable to say S = (rtn + div yield - risk free) / stddev(rtn) ???

[@wolfgangi]

what do we mean by underperform in this context? My understanding of the written definition is that how many SD (risk) the portfolio must decrease in order to achieve the most optimal portfolio ( the portfolio tangent to the CML) ?? Is this the correct understanding???

[@milzijex7340]

Wolfgang Icarus, No - in his example if portfolio falls by 0.5 sd then it will underperform the risk free rate

[@irinascott2941]

So how do u calculate the market portfolio?

[@Kirmo13]

why is volatility equal to risk?

[@irinascott2941]

Is market portfolio the same as tangency portfolio? Plz reply I have an exam on Monday

[@rayne5368]

But sharpe ratio changes all the time, and no one can predict whether a fund will perform better in the long run.

[@horangi1609]

Hii is this the same as the market price of risk?

[@Jupiter1423]

Never agreed with the cml being the portfolio of rationality. As warren buffet said - divsersification is for people who dont know how to invest. Thered nothing irrational about taking on more risk if you can manage it... hedging comes big into this.

[@Rushmanism]

Great video - Can anyone tell me why my best-performing stock has the worst sharpe ratio at-52% ( this is based on just 1 stock and its SD and ER not a portfolio).

[@josephmandarino2199]

Sharp ratio doesn't really work on a single stock

[@samamdrews8076]

what if the portfolio is a short portfolio?

[@Blank-yc9hm]

risk free investion means less risk

[@nickhurley2472]

Where is the factor for standard of living? Yea, didn't think so...

[@Bydr-ei5nw]

Basically a finance-ish z score...