{"id":40890043,"date":"2023-02-23T11:34:29","date_gmt":"2023-02-23T06:04:29","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/?p=40890043"},"modified":"2023-02-23T11:34:40","modified_gmt":"2023-02-23T06:04:40","slug":"sharpe-vs-rates","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2023\/02\/23\/sharpe-vs-rates\/","title":{"rendered":"Sharpe vs. Rates"},"content":{"rendered":"\n<p>Sharpe Ratios are often used to sort through competing investments. It is the original &#8220;risk adjusted returns.&#8221; It&#8217;s a mathematical expression of the insight that excess returns over a period of time may signify more\u00a0volatility\u00a0and risk, rather than investing skill (<a rel=\"noreferrer noopener\" href=\"https:\/\/www.investopedia.com\/terms\/s\/sharperatio.asp\" target=\"_blank\">investopedia<\/a>, <a rel=\"noreferrer noopener\" href=\"https:\/\/en.wikipedia.org\/wiki\/Sharpe_ratio\" target=\"_blank\">wikipedia<\/a>).<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"303\" height=\"56\" src=\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/02\/image.png\" alt=\"\" class=\"wp-image-40890053\" srcset=\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/02\/image.png 303w, https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/02\/image-300x55.png 300w, https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/02\/image-250x46.png 250w\" sizes=\"auto, (max-width: 303px) 100vw, 303px\" \/><\/figure>\n\n\n\n<p><strong>R<sub>b<\/sub><\/strong> or <strong>R<sub>f<\/sub><\/strong>, the risk-free return, is usually cumbersome to handle. So, typically, it is either set to zero or a constant value. The problem is that rates vary over time and has an impact on the relative ordering of investments.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/sharpe\/sharpe-sensitivity-Rf.png\" alt=\"\" \/><\/figure>\n\n\n\n<p>At high interest rates, SR(mid-caps) &gt; SR(large-caps)<\/p>\n\n\n\n<p>Ideally, you want your Sharpes to be positive and stable. Unfortunately, that is never the case.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/sharpe\/sharpe-actual-Rf.rolling.png\" alt=\"\" \/><\/figure>\n\n\n\n<p>During bull markets, Sharpes trend up and reverse course in bears.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/sharpe\/sharpe-actual-Rf.rolling.density.png\" alt=\"\" \/><\/figure>\n\n\n\n<p>At the end of the day, it boils down to whether the returns are worth the risk.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/sharpe\/cumulative.returns.png\" alt=\"\" \/><\/figure>\n\n\n\n<p>You might very well be trying to catch lightening in a bottle.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/sharpe\/annual.returns.png\" alt=\"\" \/><\/figure>\n\n\n\n<p>For more index stats, visit our <a href=\"https:\/\/stockviz.github.io\/reports\/index\/rp-risk.html\">Index Metrics<\/a> dashboard.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Sharpe Ratios are often used to sort through competing investments. It is the original &#8220;risk adjusted returns.&#8221; It&#8217;s a mathematical expression of the insight that excess returns over a period of time may signify more\u00a0volatility\u00a0and risk, rather than investing skill (investopedia, wikipedia). Rb or Rf, the risk-free return, is usually cumbersome to handle. So, typically, &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2106273,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[960,4033],"class_list":["post-40890043","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-returns","tag-risk","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890043","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=40890043"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890043\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2106273"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=40890043"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=40890043"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=40890043"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}