What is sharp ratio in mutual fund actually mean.Suppose fund A's sharp ratio is 1.8 whether B's sharp ratio is 1.2.how one can conclude with this example?
The Sharpe Ratio is a measure of the risk-adjusted return of an investment.
It was derived by Prof. William Sharpe, now at of Stanford University who
was one of three economist who received the Nobel Prize in Economics in
1990 for their contributions to what is now called "Modern Portfolio
Theory". Prof. Sharpe's web site at http://www-sharpe.stanford.edu/ has
several papers on this topic.
The calculation is pretty straightforward. You invest money in some
investment. You then calculate the value of your investment account
(including the initial investment plus the profit/loss) periodically, say
for example, every month. You then calculate the percentage return in each
month. It doesn't matter what kind of investment. It could be simply buying
and holding a single stock, or trading several different commodities with
several different trading systems. All that matters is the account value at
the end of each month.
Then calculate the averag ...more