§ 01
| Metric | Formula | What It Measures |
|---|---|---|
| Sharpe Ratio | (Return − Risk-free) / Volatility | Return per unit of total risk |
| Sortino Ratio | (Return − Target) / Downside Deviation | Return per unit of downside risk only |
| Calmar Ratio | Annual Return / Max Drawdown | Return per unit of worst-case pain |
| Information Ratio | Active Return / Tracking Error | Skill of active management vs. benchmark |
§ 02
Sharpe Ratio = (Rp − Rf) / σp
§ 03
A Sharpe ratio above 1.0 is good, above 1.5 is excellent, and above 2.0 sustained over years is world-class (and suspicious — it may indicate hidden risks or smoothed returns).
§ 04
Calculate the Sharpe ratio for your portfolio over the last year. Compare it to the S&P 500’s Sharpe. Are you being compensated for the risk you’re taking?
§ 05
Fund A: 20% return, 30% volatility (Sharpe 0.53). Fund B: 10% return, 8% volatility (Sharpe 0.75). Which is the better risk-adjusted performer?
§ 06
§ 07
Fund A: 12% return, 20% volatility. Fund B: 10% return, 10% volatility. Which is the better risk-adjusted performance?
Five questions · AI feedback
Sit with the ideas.
Fund A: Sharpe 1.4, Sortino 1.4, Calmar 0.9. Fund B: Sharpe 1.4, Sortino 2.1, Calmar 1.6. Both have the same total return. Which fund would a retiree drawing income from the portfolio prefer, and why?
Why: