When estimating a sharpe ratio, would it make sense to use the average excess real return that accounts for inflation?

1 answer:

7 0

When estimating a Sharpe ratio, it makes sense to use the average excess real return that accounts for inflation the geometric return represents a compounding growth number and would inflate the annual performance of the portfolio.

As a rule of thumb, a Sharpe ratio above 0.5 is marketplace-beating performance if finished over the longer term. A ratio of one is top-notch and hard to attain over lengthy durations of time. A ratio of zero.2-zero.3 is in keeping with the wider marketplace.

In finance, the Sharpe ratio measures the performance of investment together with protection or portfolio as compared to a risk-unfastened asset, after adjusting for its risk.

It facilitates traders to perceive the threat level and changed the return rate of all mutual price ranges. This gives a clean image to the investors, and they get to recognize if the threat they take is giving top returns or not.

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