What is a good Sharpe ratio for trading?

Usually, any Sharpe ratio greater than 1.0 is considered acceptable to good by investors. A ratio higher than 2.0 is rated as very good. A ratio of 3.0 or higher is considered excellent. A ratio under 1.0 is considered sub-optimal.

What does a Sharpe ratio of 2 mean?

A Sharpe ratio less than 1 is considered bad. From 1 to 1.99 is considered adequate/good, from 2 to 2.99 is considered very good, and greater than 3 is considered excellent. The higher a fund’s Sharpe ratio, the better its returns have been relative to the amount of investment risk taken.

What is a good or bad Sharpe ratio?

A Sharpe ratio of 1.0 is considered acceptable. A Sharpe ratio of 2.0 is considered very good. A Sharpe ratio of 3.0 is considered excellent. A Sharpe ratio of less than 1.0 is considered to be poor.

Why do investors care about Sharpe ratio?

Using the Sharpe Ratio First, investors gauge how consistent an investment’s returns are expected to be going forward. Second, investors can compare investments with different returns and risk profiles to each other (i.e., compare “apples to apples” so-to-speak).

What is the Sharpe Ratio of the Nasdaq?

The current NASDAQ 100 Sharpe ratio is 1.77. A Sharpe ratio greater than 1.0 is considered acceptable.

What is the Sharpe ratio and why is it important?

What is the Sharpe Ratio? Named after American economist, William Sharpe, the Sharpe Ratio (or Sharpe Index or Modified Sharpe Ratio) is commonly used to gauge the performance of an investment by adjusting for its risk. The higher the ratio, the greater the investment return relative to the amount of risk taken, and thus, the better the investment.

How do Sharpe ratios compare between fund managers?

Consider two fund managers, A and B. Manager A has a portfolio return of 20\% while B has a return of 30\%. S&P 500 performance is 10\%. Although it looks like B performs better in terms of return, when we look at the Sharpe Ratio, it turns out that A has a ratio of 2 while B’s ratio is only 0.5.

What is a good Sharpe ratio for algorithmic trading?

Most Quantitative hedge funds ignore strategies with annualized Sharpe ratio less than 2. For a retail algorithmic trader, an annualized Sharpe ratio greater than 2 is pretty good. For high-frequency trading, as discussed, the ratio can go up in double digits as well, especially for opportunity-driven but not highly scalable strategies.

How does portfolio adjustment affect the Sharpe ratio?

The fund manager decides to add some commodities to diversify and modify the composition to 80/20, stocks/commodities, which pushes the Sharpe ratio up to 1.90. While the portfolio adjustment might increase the overall level of risk, it pushes the ratio up, thus indicating a more favorable risk/reward situation.