The Sharpe Ratio Explained (by a quant trader)

Рет қаралды 82,756

Күн бұрын

Пікірлер: 184

@salazarbernardo 2 ай бұрын

Come on dude, you can't just abandon the channel like that! You lecture like a pro! Please keep doing it! Just brilliant work here. We don't need fancy guru-like explanations, we need more of this!

@faxexmachina921 2 ай бұрын

Finally a mathematically motivated, bottom-up explanation of financial theory. Subscribed

@johntu7484 23 күн бұрын

This bottoms-up approach-starting from simple concepts like return and volatility and building toward bigger ideas like portfolio construction-really demystifies a lot of quantitative finance. It’s great to hear that this framework resonates with you! If you have any follow-up questions or want a deeper dive into any of these steps (like correlation math or t-statistics), just let me know.

@faxexmachina921 19 күн бұрын

@@johntu7484 Thanks for the reply. I'm interested in understanding/constructing financial theory from minimal and robust axioms. If you know of any first-principle optimizations or variables/indicators with apriori backing please let me know. For instance, the simplicity of the Sharpe ratio in combining two fundamental things while, interestingly, being proportional to the t-statistic to add statistical justifiability really hit my sweet spot. In a similar fashion, I'm interested about price indicators with similar properties if there's any.

@johntu7484 19 күн бұрын

A great place to start is by laying down a handful of “core assumptions” that tend to underpin most of modern finance. At the top of the list is no-arbitrage-you shouldn’t be able to generate infinite profit with zero risk. Next, risk aversion says that investors demand extra expected return for bearing extra risk (unless the payoff is somehow guaranteed). Then comes time value of money, meaning a dollar today is worth more than a dollar tomorrow. These building blocks naturally lead to constructs like the Capital Asset Pricing Model (CAPM) and mean-variance optimization. Out of these ideas, the Sharpe ratio emerges as a succinct measure of performance: it divides excess return (relative to the risk-free rate) by the standard deviation of returns. It’s particularly elegant because it folds two fundamental things-“reward” and “risk”-into one dimensionless number, and it aligns with a t-statistic interpretation when returns are close to IID normal. If your data or strategy can be (mostly) approximated by these assumptions, Sharpe becomes a fairly robust metric, despite its known limitations in fat-tailed or auto-correlated environments.

@exentrikk 27 күн бұрын

Petition to bring this channel back

@tradesbyj7112 2 ай бұрын

I am only 6 minutes in and subscribed: finally a channel that speaks my language and actual shows the mathematics and explains it. Will keep watching

@andreipopescu4475 2 ай бұрын

One of the best videos I've seen on KZbin! You just summed up an entire University Course in one video, and for someone with a small background in this stuff maybe even more. Thank you so much!

@AHoboWithAStick Ай бұрын

Anyone that starts investing should be required to watch this until they memorize it word for word. Great video & explanation 👌

@gunzzilla 2 ай бұрын

The only channel that only has 1 vid yet I subscribed to. Pls upload more vids!

@ephraimvasilyev5916 2 ай бұрын

Great quality for 1st video, keep it up mate

@davidhuber563 4 ай бұрын

Continue man !!!! This is good stuff we want more videos like this !

@anandn6594 5 ай бұрын

1st comment from an Indian finance enthusiast. This channel is gonna reach heights. Don't stop posting🙌🏻

@thewallstreetquants 5 ай бұрын

Appreciate it thank you sir!

@aniketgupta4407 2 ай бұрын

Hey bro are u in Ca final?

@thewallstreetquants 2 ай бұрын

@aniketgupta4407 2 ай бұрын

@@thewallstreetquants It is the course which is equivalent to CPA. I am asking this Anand

@Kimthepowerfuljong-un 2 ай бұрын

Why indians are always telling their country?

@theferzuck719 Ай бұрын

We need you back man

@HappyHappyFun99 2 ай бұрын

Wow. This is one of the most easy to understand, yet information-dense videos I've ever watched! Subscribed!🎉❤

@thehiddenedge24 2 ай бұрын

This is awesome. Keep up the great work, I’m subscribed!

@LeweiFu 4 ай бұрын

Love this video its so detailed and easy for an introductory video and learnt a lot, thank you!

@adityakhatwa8555 16 сағат бұрын

It has been 5.months since the last video. And the video is pretty good 👍.

@LuigiMessi10 27 күн бұрын

This is awesome, for an engineer trying to transition to finance this is great.

@dirk.no-whisky.4u Ай бұрын

Immediately subscribed, great content man

@lilep666 Ай бұрын

8:00 here's some food for thought: in your example, you use negatively correlated instruments to show that mixing them is better than having each one separately, which is true, but here's the thing you missed: even if those instruments were completely UNCORRELATED, it would STILL be better to mix them, you would still get a higher sharp ratio than having just one of them separately.

@bultvidxxxix9973 23 күн бұрын

I would say they are uncorrelated. A negative correlation would mean that if one goes up the other goes down. If that were the case, they couldn't both go up, but they do.

@johntu7484 23 күн бұрын

Even zero correlation (not just negative) boosts your portfolio’s overall Sharpe ratio as long as you combine the assets in a reasonable weighting. Negative correlation is great, but any correlation below +1 yields a diversification benefit-reducing overall volatility more than it reduces total expected returns, which increases the risk-adjusted return measure.

@xv0047 2 ай бұрын

You are a great explainer.

@thewallstreetquants 2 ай бұрын

Thank you!

@lalitshankarchowdhury5939 Ай бұрын

@@thewallstreetquants Hi, are future videos in your plan?

@StefanReich 2 ай бұрын

Perfectly explained

@johntu7484 23 күн бұрын

The Sharpe ratio is not perfect-no single metric is. But it is an excellent, concise summary of how much “reward” you’re getting for the “risk” you bear. Most real-world portfolio construction and hedge fund research starts with Sharpe as a key number, then digs deeper into other risk metrics, factor exposures, and scenario analyses. If you keep these insights (and limitations) in mind, the Sharpe ratio becomes a powerful lens for understanding and improving your investing or trading strategies.

@NudelKungen. Ай бұрын

Great video! Its good to point out though that volatillity isnt the same as risk, for example a real estate company could be extremely stable with growing revenue over a 20 year period but then interestrates rise rapidly and this company is using a lot of leverage, all of a sudden this company drops 70% in price after being stable for 20 years. Volatillity and the misspricing of secureties can also create great oppertuneties.

@ignacioiturralde927 2 ай бұрын

This is a masterpiece.

@alan_kss1377 2 ай бұрын

Great video! You will become 3b1b of quant finance!

@thewallstreetquants 2 ай бұрын

The goat!

@Franky-j6e Ай бұрын

I’ve been trying to understand portfolio performance metrics, and I keep hearing about the Sharpe ratio.

@Will54rol Ай бұрын

The Sharpe ratio measures risk-adjusted returns. Basically, it shows how much return you're getting for the risk you're taking. A higher Sharpe ratio means your portfolio is performing well relative to the risks involved. It’s a key tool for avoiding overexposure to risky assets, which many investors overlook

@MONROEJACQ Ай бұрын

Exactly. During market volatility, like we saw in early 2020, portfolios with a poor Sharpe ratio tend to experience greater losses. Many people fail to consider risk-adjusted returns, and that’s where things go wrong. I learned the hard way and lost over 30% of my portfolio back then. That’s when I started working with a financial advisor to avoid costly mistakes

@Churchillhump2268 Ай бұрын

I can relate. I used to focus only on returns without factoring in the risk. Over time, I realized how critical metrics like the Sharpe ratio are. If you’re not comfortable analyzing this, consider seeking expert guidance. My advisor, Joseph Nick Cahill, specializes in this. He offers free consultations and has helped me achieve long-term stability while minimizing risks. It's a game-changer

@Kattyol1 Ай бұрын

Thanks for sharing that! I’ve been relying on basic strategies but keep feeling like I’m taking unnecessary risks. Do advisors like him also provide guidance for short-term goals? I want to ensure my portfolio is balanced, especially during economic uncertainty

@Churchillhump2268 Ай бұрын

Absolutely. Joseph has a knack for addressing both short-term and long-term goals. He helped me reallocate my portfolio to reduce risk while boosting returns. A lot of people overlook diversification and risk management, which is why so many portfolios underperform

@Johnsormani 2 ай бұрын

Wow that’s a very thorough explanation! Thanks

@DewaldN Ай бұрын

As someone who develops Automated trading bot/EA's for clients/companies, this was just the video I needed.

@lgninjalo Ай бұрын

I'm am EE. This is the exact kind of stuff I've been looking for.

@kps.mp4 3 ай бұрын

Excellent explanation, brother. Thank you 🙏

@jimnguyen. 28 күн бұрын

You're goated. I have a lesson on this in my class in about 2 weeks so u saved my ass fr

@WeRise562 10 күн бұрын

MOREEEE VIDEOS PLEASEEEEEEEEEE :(((( LOVE THE TEACHING

@extrememike 20 күн бұрын

Wonderful explanation. Thank you!

@conformist 5 күн бұрын

very, very good video. can't believe we only got one lol. i've been discretionary trading a lot--so all of this makes perfect sense to me. leveraging up even on high sharpe ratio is where it made me think "it depends" i guess. have to understand where you edge comes from, and what the blow up risk of that edge is. if it's low, then leveraging up can be good. if not, then need to keep no lev and when to shut down the strat i guess?

@lawand60 2 ай бұрын

Brilliant! Keep up the good work.

@maarkoo2775 2 ай бұрын

Amazing explanation. Keep on going!

@itskartikarora 3 ай бұрын

more videos plz! thx

@lfnovo Ай бұрын

Awesome video.. come back and record more :)

@imzan3650 2 ай бұрын

CFA L3 guy here. Subed in 60 seconds.

@qswedasf 2 ай бұрын

I think you need to ask for you money back, no offense...

@kesavaadambaram Ай бұрын

Expecting more from you

@ec6895 Ай бұрын

oh this is good. cant wait for whats next

@mmenchu Ай бұрын

8:48 "In the end we can't eat sharpe ratios" haha. Beautiful.

@naxxsty8786 Ай бұрын

Although sharp ratio is very important in my opinion the recovery factor ist one of the most important if not the most important metric IF your dealing with leveraged products

@dad1844 Ай бұрын

PLEASE MAKE MORE VIDEOS !!!!!!

@bigplaya3374 Ай бұрын

quality video

@DanielZ1337TM 2 ай бұрын

Interesting. I did this and figured this out myself through analysis and experimentation, thinking how can I combine different things and what do they mean, how do they interact?

@AaronNicholsonAI 2 ай бұрын

So awesome. Thanks. But why no more videos?

@sinecosine8028 Ай бұрын

Great video- keep it up!

@trinimusa4069 Ай бұрын

Man dropped his piéce de résistance and dipped. Rip to a loved one

@cherylrimmer5227 Ай бұрын

This is a fantastic video

@faez8220 Ай бұрын

great explanation!

@diazutube 2 ай бұрын

keep posting dude.. it's valuable for me as crypto trader

@leonard0104 Ай бұрын

Awesome! Thanks sire

@longestnamepwnsall 2 ай бұрын

Thoughts on Sortino? Do you think it’s better because it only penalizes downside risk?

@dad1844 Ай бұрын

SUBSCRIBED!

@vivekdandare 2 ай бұрын

this is great video...are you going to post more videos like this?

@AMotoVlogger Ай бұрын

MOAR!

@AEVMU 2 ай бұрын

Black also has a lower safe withdrawal rate, which for anyone in retirement. is critical. I would even argue that for retired folk, the safe withdrawal rate is even more important than Sharp.

@jamies9083 Ай бұрын

Fantastic video

@Patel-tn1gs 17 күн бұрын

We want next video... We eagerly waiting for that 😅

@FF-ms6wq 2 ай бұрын

Excellent video.

@alexpun7205 Ай бұрын

The problem is using volatility as a proxy of risk. What investor don't like is future downside movement, which is different from volatility, also SR measure the past rather than future.

@williamwhitehead374 Ай бұрын

Please Explain Sortino!

@zahidazdine8139 2 ай бұрын

well explained, keep going

@KingXKok Ай бұрын

Black is a better investment option if not the full portfolio because if you have other assets not fully correlated, you can buy it super cheap

@GabrielPecunia 2 ай бұрын

Geat video!!

@pappu12383 Ай бұрын

Nice video keep it up 🔥

@nabilalhusail4731 Ай бұрын

Amazing content, but please use a bright pen color to write on black. Can't see red pen on phone

@Nemi51500515 Ай бұрын

8:25 This is a fictional situation. You have carefully picked two investments (or made them up) that negatively correlate AND the timeframe is perfect. When is that timeframe perfect? You picked ones “that end up in the same place”. Ok, but what if you picked a point in time where they DIDN’T end up in the same place? Your pretty picture is less pretty and one could argue that by owning both you simply reduced your gains.