Sharpe Ratio

[virgin]

What is the exact definition of this ratio ?
What is considered as less the average,
average an above average ?
What other ratio's are considered as im-
portant in achieving a certain % performance
in the Hedge Fund Business ?



Regards,
Virgin.

 

[tymjr]

Virgin: ”What is the exact definition of this ratio?”

The Sharpe ratio can be calculated as the amount of:

Excess Returns divided by the Annualized SD of Account Returns (ER / ASDAR)

Where:

ER = Annualized Account Return - Risk Free Return (AAR - RFR)

RFR = A risk free investment such as a T-Bill

There are more complex methods that may, for instance, alter the SD calculation or use projected returns.