Calculate performance ratios in Excel! Sharpe, Sortino, Treynor, and Information Ratio!

[@marcoboldini7180]

Mr Thomas, I cannot thank you enough for this free content! You're helping a lot of students and early professionals globally! Thank you

[@rutwikantre7092]

Thank you so much Mr Thomas, can't express how useful your practical examples were for me !! Keep going, God Bless You

[@rodrigoaeng6635]

This is a great video thank you!

[@boredonatuesday8793]

This was good. Thank you

[@VipulMehta817]

Hello, this is very explanative. Thanks. Can you also make a video on computing up capture and down capture vs benchmark for this fund over the same time horizon?

[@ricthomas6436]

@@VipulMehta817 thank you, this is a good suggestion.

[@avs__1702]

Hi Ric - when calculating the beta, why aren’t you using the excess returns above the risk-free rate for the portfolio and the benchmark as your inputs? Is it okay to just use the returns of those inputs without first calculating the excess returns?

[@ricthomas6436]

Hi, the stock's beta is first estimated using the market index model, which simply regresses the stock return (or asset return) against the market index. It is true that the CAPM subtracts the risk free rate from the market expected return, then multiplies this by beta and adds in the risk free rate. However, the beta itself is estimated by directly regressing the asset return against the market return. Even if you did subtract the risk free rate, you'd get a similar beta estimate, however. I hope this helps. Thank you.

[@avs__1702]

@@ricthomas6436Thanks Ric! So when calculating beta, I would regress the asset itself against the market return. Although not covered in this video, when calculating alpha, would I use the CAPM method of subtracting the risk-free rate from the market return and benchmark return before regressing the market return against the benchmark return? I’m struggling to distinguish when to subtract the risk-free rate from the market return and benchmark return and when not to. I’ve seen videos where they subtract the risk-free rate to calculate both beta and alpha other videos where they don’t. Thanks again for the help!

[@ricthomas6436]

@@avs__1702 Yes, in this case you regress the return of the asset - risk free rate against the return of the market - risk free rate. You are testing to see if, assuming we live in a CAPM world, the alpha (constant term) is different than zero. Assuming we live in CAPM world, and the market is efficient, the constant term should be 0. I do have a video on my channel that covers this as well. But in this case, the reason that you are regressing against the market - risk free, is that you are now testing to see if the CAPM holds, if the asset has "alpha", and if the market is efficient. Hope this helps. RT

[@tawalters35]

Ric, many thanks for the detailed explanations. I am trying to measure performance of my accounts as if they were hedge funds. I would love to have a copy of your spreadsheet to use your data sets in my spreadsheet to assure the numbers tie out. I'll send you a copy of my spreadsheet report format when done. (Sort of like turning in my homework.) Any chance I could download a copy?

[@fedor6600]

Hi! Can the Sortino Ratio be applied on a single stock or is it just for portfolios?

[@ricthomas6436]

@@fedor6600 It can be applied to any asset that has a historical return series, including a single stock. But, as they say, past performance isn’t always the best predictor of future returns and there is a lot of “noise” influencing the returns of single stocks.

[@fedor6600]

@@ricthomas6436 got this thank you!

[@AjayYadav-kg3cc]

super Thomas

[@RishabhRishab]

Pls share this excel sheet in description for better understanding.

[@stephenmiller7776]

Are you sure your calculating the column E correctly? If the portfolio is negative you just use this number rather than (Rp- MAR)? Say the portfolio was negative but the SP400 was positive wouldnt you do for example -2-5 = -7 ?

[@ricthomas6436]

Yes, that is correct. Column E is simply how much you outperformed or underperformed for the month.

[@geoffreyg5659]

Hello, why do you calculate the performance ratio with the portfolio return of the last month instead to use the mean of each month of the portfolio return? i saw 2 manners to calculate the performance ratio but the result is not the same... i don't really get it

[@Persian5life]

Ric please please please start a course in Udemy that summarizes all of your videos and starts from scratch. there are no videos on Udemy on Portfolio analysis like this. If anyone knows any course that does this in Excel please let me know.

[@ricthomas6436]

Thank you, I can look into that. Regards, RT