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The units of Sharpe ratio are 'per square root time', that is, if you measure the mean and standard deviation based on trading days, the units are 'per square root (trading) day'. It should be obvious then, how to re-express Sharpe ratio in different units. For example, to get to 'per root month', multiply by $\sqrt{253/12}$.
3 Ιαν 2020 · The conditional Sharpe ratio may be used to assess asset pricing models (see Hansen Jagannathan bound), whereas the ''ex-ante'' Sharpe ratio is a useful number upon which investors would like to condition their investment decisions. Finally, the ''ex-post'' Sharpe ratio can be used to compare historical returns of stocks, funds etc.
If you want to maximize the Sharpe ratio, then that's generally the formula you would use. It's more difficult than standard mean variance. Under some assumptions, the optimal mean variance portfolio fully invested will equal the maximum Sharpe ratio portfolio. I just wanted to give a simple derivation of the formula the OP was asking about.
1 Αυγ 2021 · How do I go from daily to annual sharpe? Say I have an asset with average daily return of 0.1% and a daily return standard deviation of 1%. My daily sharpe ratio is 0.1%/1% = 0.1. Now let me annualize, assuming 365 trading days. 0.1% daily return is (1+0.1%)^365 - 1 = 44% per year. (fixed, thanks commentors).
Anyone who uses Sharpe ratio metrics should know precisely what they measure. You cant come later and complain that SR did not account for operational risk or model risk. And I simply pointed out that SRs can be derived from P&L, regardless of the avg holding period of positions. And I am not happy to digress because I prefer to stay on topic.
Generally, though, it is called a Sharpe Ratio if returns are measured relative to the risk-free rate and an Information Ratio if returns are measured relative to some benchmark. Calculations may be done on daily, weekly, or monthly data, but results are always annualized (and typically by a factor of $\sqrt{252}$ for daily equities, $\sqrt{260 ...
5 Ιαν 2022 · The maximum Sharpe Ratio portfolio (aka tangency portfolio) is a particular portfolio on the efficient side of the mean-variance frontier. The maximum Sharpe Ratio portfolio comes up a lot, but that an investor only cares about mean and variance does not on its own imply that he/she will buy the maximum Sharpe Ratio portfolio. You need ...
12 Μαΐ 2021 · If the asserts are correlated, there is geometric formula involving the circumcircle of a triangle built on the two Sharpes. If the correlation between the two assets is sufficiently positive, the optimal weight of the weaker asset can be negative .
4 Δεκ 2022 · The Sharpe Ratio is calculated using returns over predefined intervals of time, typically trading days. I do not think returns over each trade (each which lasts a random time averaging 33 minutes) are a valid starting point for calculation of a Sharpe Ratio.
(1) Excess returns, volatility and position sizing should not be looked at separately. (2) There is logical intuition that drives the relationship between the Sharpe ratio and the Kelly leverage; you want to increase your allocation to a strategy that you believe to have better risk-adjusted returns (Sharpe ratio).
