The formula to calculate the Sharpe Ratio is:
\[ \text{Sharpe Ratio} = \frac{\text{Rp} - \text{Rf}}{\sigma_p} \]
Where:
The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations.
Let's assume the following values:
Using the formula:
\[ \text{Sharpe Ratio} = \frac{8 - 3}{14} \]
Evaluating:
\[ \text{Sharpe Ratio} = 0.357142857142857 \]
The Sharpe Ratio is approximately 0.357.
| Expected Portfolio Return | Risk Free Rate | Portfolio Standard Deviation | Sharpe Ratio |
|---|---|---|---|
| 5% | 2% | 14 | 0.2142857143 |
| 5% | 3% | 14 | 0.1428571429 |
| 5% | 4% | 14 | 0.0714285714 |
| 6% | 2% | 14 | 0.2857142857 |
| 6% | 3% | 14 | 0.2142857143 |
| 6% | 4% | 14 | 0.1428571429 |
| 7% | 2% | 14 | 0.3571428571 |
| 7% | 3% | 14 | 0.2857142857 |
| 7% | 4% | 14 | 0.2142857143 |
| 8% | 2% | 14 | 0.4285714286 |
| 8% | 3% | 14 | 0.3571428571 |
| 8% | 4% | 14 | 0.2857142857 |
| 9% | 2% | 14 | 0.5000000000 |
| 9% | 3% | 14 | 0.4285714286 |
| 9% | 4% | 14 | 0.3571428571 |
| 10% | 2% | 14 | 0.5714285714 |
| 10% | 3% | 14 | 0.5000000000 |
| 10% | 4% | 14 | 0.4285714286 |