The Sharpe Ratio

[@Annie2229]

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

[@FedrickWhite-jo2ed]

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

[@Adam-dm8wg]

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

[@Theodore-tu5zg]

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

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[@EmiliaSmith-h8v]

We need to come across good infos like this. I

[@patricialim6816]

Probably the most simple explanation of this investment formula. Everyone else out there makes it sound like calculus... thank you!

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You are the best finance teacher ever. I only see your video ONCE and I get it all.

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Thank you Sir! You saved my life from CPA, now you will save me from CFA....

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[@Edspira]

Thank you!

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[@mariahclaire1256]

Well explained video sir.

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[@Edspira]

Glad you enjoy it!

[@InvestOrama]

@@Edspira Sure did! And it's inspiring my own course on alternative investments

[@sportingdirector1]

Heck I would watch the whole ad to support

[@ethans7917]

I’m still in high school but I just find finance so interesting! Thank you for ur explanation

[@vapa5761]

Dude, your videos are golden, glad that i came across your channel

[@kaiguo3907]

Thank you for sharing such a helpful interpretation of sharp ratio, I am so excited to see more videos from you.

[@joshuafancher3111]

Thank you. Thoroughly explained.

[@kasbiia]

your videos have been so helpful over the semesters thank you so much!

[@Tiberius_Gracchus]

Great video, you are a gifted teacher, keep up the good work!

[@hazirahashim1904]

volatility does not equal risk. volatility is how much the data disperses from the expected value. risk is the probability that the investor deviates from their expected return. Variance measures volatility & not risk. One of the measures of risk is Standard Deviation.

[@grodrigues3]

Didn't watch the video on efficient portfolio's but based on the graph, it looks like the purple part is efficient because taking on more risk yields BETTER reward and and the yellow part is where taking on more risk yields WORSE rewards. Does the yellow section all have a negative sharpe ratio?

[@AlaraDincYT]

as always... an amazing video! thank you

[@luca9961]

But if at the denominator we have the standard deviation, doesn't the Sharpe ratio penalizes the upward volatility as well ? Which is not desirable? Or it is based upon all volatility will imply sooner or later the same in the oposite direction, hence it's bad ?

[@joannaortiz9015]

I understand it now! Thank you!!!

[@irinascott2941]

So how do u calculate the market portfolio?

[@Kirmo13]

why is volatility equal to risk?

[@lukashuber389]

great video!!

[@irinascott2941]

Is market portfolio the same as tangency portfolio? Plz reply I have an exam on Monday

[@Discovery_and_Change]

Where do we find the volatility of an ETF? What's it called? Is it labeled as 'volatility' or 'beta' ?

[@horangi1609]

Hii is this the same as the market price of risk?

[@megawarpig3401]

So the portfolio of risky assets tangent to the CML has the highest Sharpe Ratio. But all the portfolio on the CML have the same Sharpe Ratio, since the slope of the CML is the Sharpe Ratio, correct? And the points on the CML can be obtained by a combination of the risk-free asset and the tangent portfolio of risky assets, right?

[@douglashurd4356]

How can the dividend yield rate be included in the calculation? Is it reasonable to say S = (rtn + div yield - risk free) / stddev(rtn) ???

[@wolfgangi]

what do we mean by underperform in this context? My understanding of the written definition is that how many SD (risk) the portfolio must decrease in order to achieve the most optimal portfolio ( the portfolio tangent to the CML) ?? Is this the correct understanding???

[@milzijex7340]

Wolfgang Icarus, No - in his example if portfolio falls by 0.5 sd then it will underperform the risk free rate

[@the_freedom_quest]

Thank you so much

[@Edspira]

You're most welcome

[@juanochoa3972]

Thank you so much for the explanation. Do you have an excel sheet as an example. With daily data?. Rgds and thanks!

[@coachgeflores]

Very informative video. Are you using Geometric or Arithmetic Rates of Return and Standard Deviations?

[@adokoka]

Very clear explanation. Could you please make a video on the sortino ratio? Many thanks in advance!

[@samandrews8076]

what if the portfolio is a short portfolio?

[@Jupiter1423]

Never agreed with the cml being the portfolio of rationality. As warren buffet said - divsersification is for people who dont know how to invest. Thered nothing irrational about taking on more risk if you can manage it... hedging comes big into this.

[@maxmudbekmurodov6938]

The most comprehensive video on youtube) would be even better if you include some specific examples ! Thank you anyway)

[@Rushmanism]

Great video - Can anyone tell me why my best-performing stock has the worst sharpe ratio at-52% ( this is based on just 1 stock and its SD and ER not a portfolio).

[@josephmandarino2199]

Sharp ratio doesn't really work on a single stock

[@rayne5368]

But sharpe ratio changes all the time, and no one can predict whether a fund will perform better in the long run.

[@Blank-yc9hm]

risk free investion means less risk

[@nickhurley2472]

Where is the factor for standard of living? Yea, didn't think so...

[@Bydr-ei5nw]

Basically a finance-ish z score...

[@xv0047]

but you never explained that r_p and r_f is