[Verse 1] Sarah's portfolio earned fifteen percent last year While Treasury bonds sat safe at three But volatility made her gains disappear Some months up twenty, some down drastically She wonders if the wild ride was worth the prize There's got to be a better way to analyze [Chorus] Sharpe ratio, Sharpe ratio Excess return divided by the sigma flow Take your gains, subtract risk-free Divide by standard deviation, now you see Which investment truly earns its keep When adjusted for the bumpy leap Sharpe ratio tells the tale complete [Verse 2] William Sharpe designed this clever measure To compare apples with flying machines Portfolio A made gold-rush treasure But swung like a pendulum between extremes Portfolio B earned modest, steady growth Now which performed better? Let's test them both [Chorus] Sharpe ratio, Sharpe ratio Excess return divided by the sigma flow Take your gains, subtract risk-free Divide by standard deviation, now you see Which investment truly earns its keep When adjusted for the bumpy leap Sharpe ratio tells the tale complete [Bridge] Higher numbers crown the champion More reward per unit risk you bear Zero means you matched the safe haven Negative? You lost to sleeping there Point seven five is pretty decent One point five makes analysts gleam [Verse 3] Fund manager boasts his thirty percent But his portfolio bucked like a bronco wild Standard deviation was twenty, clients bent Under stress that made them lose their smile Sharpe calculation: thirty minus three Divided by twenty equals one point three-five [Final Chorus] Sharpe ratio, Sharpe ratio Risk-adjusted performance in one neat bow Excess return over volatility The golden standard for efficiency Separates the wheat from the chaff below Smart money follows where the Sharpe ratios glow Now you know the metric pros employ
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