What Is The 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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