Risk Metrics: Sharpe, Beta, and Drawdown — Building Your First Portfolio

§ 01

Metric	What It Measures	Good Target
Sharpe Ratio	Return per unit of risk	Above 1.0 (above 2.0 is excellent)
Beta	Correlated movement with the market (not total volatility)	1.0 = same as market, <1 = less volatile
Max Drawdown	Worst peak-to-trough loss	Lower is better (aim < 20%)
Correlation	How stocks move together	Lower correlation = better diversification

§ 02

Sharpe Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Std Dev

§ 03

Open the **Portfolio Analytics** tab and check your Sharpe Ratio, Beta, and Max Drawdown. Is the risk justified by the return?

§ 04

A portfolio earning 15% with 30% volatility (Sharpe 0.35) is worse risk-adjusted than one earning 10% with 10% volatility (Sharpe 0.55). Risk matters as much as return.

§ 05

Portfolio A: Sharpe 1.2, max drawdown 15%. Portfolio B: Sharpe 0.9, max drawdown 8%. Which is the better portfolio?

Five questions · AI feedback

Sit with the ideas.

Portfolio A has Sharpe 1.5 and Portfolio B has Sharpe 0.5. Which gives better risk-adjusted returns?

Why:

Sit with the ideas.

Other lessons in this course.