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Sharpe ratio #471271
02/26/18 00:45
02/26/18 00:45
Joined: Dec 2017
Posts: 129
Halifax, NS
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kujo Offline OP
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kujo  Offline OP
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Hi,

Manual says: A Sharpe ratio of 1.5 would be equivalent to a savings account with 50% risk-free interest.

I wonder on what basis?

Saving account with 50% risk-free interest has risk = 0 by definition. Profit is fixed. Std=0. How Sharpe could be 1.5 ?

Re: Sharpe ratio [Re: kujo] #471341
02/28/18 14:17
02/28/18 14:17
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Posts: 27,024
Frankfurt
jcl Offline

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Re: Sharpe ratio [Re: jcl] #471357
02/28/18 21:07
02/28/18 21:07
Joined: Dec 2017
Posts: 129
Halifax, NS
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kujo Offline OP
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kujo  Offline OP
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Well, I know what is Sharpe ratio... That's why your result looks strange for me. The very idea of measuring Sharpe of a saving account is strange for me.

And I asked how did you come up with 1.5. Could you explain your formula and what values did you used to get 1.5?

Last edited by kujo; 02/28/18 21:18.
Re: Sharpe ratio [Re: kujo] #471395
03/02/18 17:38
03/02/18 17:38
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Frankfurt
jcl Offline

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The Sharpe Ratio converts volatile profit to its nonvolatile equivalent. it is a metric for trading systems. There is no "Sharpe Ratio of a savings account". Share ratio is very common and you can find all details under the Wikipedia Link.

Re: Sharpe ratio [Re: jcl] #471407
03/02/18 20:55
03/02/18 20:55
Joined: Dec 2017
Posts: 129
Halifax, NS
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kujo Offline OP
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kujo  Offline OP
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Thank you! The only thing I don't understand is how you come up with this:
Quote:
Sharpe ratio of 1.5 would be equivalent to a savings account with 50% risk-free interest.

Re: Sharpe ratio [Re: kujo] #471436
03/04/18 11:40
03/04/18 11:40
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Spirit Offline

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When you have Sharpe ratio 1, its comparable to 0% riskfree return, and Sharpe ratio 2 is 100% riskfree return, so you can do the math for Sharpe ratio 1.5.

Re: Sharpe ratio [Re: Spirit] #471442
03/04/18 14:48
03/04/18 14:48
Joined: Dec 2017
Posts: 129
Halifax, NS
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kujo Offline OP
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kujo  Offline OP
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Originally Posted By: Spirit
When you have Sharpe ratio 1, its comparable to 0% riskfree return, and Sharpe ratio 2 is 100% riskfree return


I'd appreciate if you could share the link to the information (except the manual) in support of this statement. I never seen this kind of comparison in any kind of Sharpe related papers (including paper's by William Sharpe). So, some kind of explanation and proof would be great!

Thank you!

Re: Sharpe ratio [Re: kujo] #471454
03/05/18 09:26
03/05/18 09:26
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Spirit Offline

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I think no link is needed, just a little considering:

A trading system where you have X return at cost of the same X risk is comparable to a 0% savings account where you invest X $ and still have X $ in the account after a year.

And a trading system where you have 2*X return at cost of X risk, so Sharpe = 2, is comparable to a savings account where you have 2*X $ at cost of investing X $. So, this savings account has 100% return.

Re: Sharpe ratio [Re: Spirit] #471482
03/06/18 01:23
03/06/18 01:23
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Posts: 129
Halifax, NS
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kujo Offline OP
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Ok, thank you, now I see you way of thinking.


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