What Is A Sharpe Ratio And Why Should You Care
The Holy Grail of investing is to find assets that are low in risk, and high in return.
Unfortunately, the two are anticorrelated: putting money in your mattress isn’t very risky, but unlikely to make you rich. Whereas investing in some dropout’s startup is extremely risky, but could make you a billionaire.
One way that institutional investors, like top hedge funds, global family offices, and the best investment clubs, quantify that tradeoff is with a quantity called the Sharpe Ratio. In this article, we’ll define what the Sharpe Ratio is, and explain how hedge fund managers use it in investing.
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