Derived by William Sharpe in 1966, the Sharpe ratio describes how much excess return you receive for the added volatility that you tolerate for holding on to a risky asset.
It is calculated this way:
S(x) = (rx-Rf)/StdDev(x)
x = investment
rx= ave. rate of return of x
Rf= best available rate of return of a risk-free security (ie. Currencies)
StdDev (x) = standard deviation of rx
Robopip uses the Sharpe ratio to measure the risk tolerance of a system.
It helps him solve for the additional compensation above a certain level that the system should yield for each additional unit of risk. Basically, the higher the ratio, the better the system is.« Back to Main Page