Negative Sharpe Ratio Interpretation

When Is Sharpe Ratio Negative?

It is very simple when you look at the Sharpe ratio formula:

Sharpe ratio formula

(Here you can find detailed explanation of Sharpe ratio formula.)

Sharpe ratio equals portfolio excess return divided by standard deviation of portfolio returns.

Standard deviation, which in this case can be interpreted as volatility, of course can’t be negative.

(Here you can see why volatility can’t be negative.)

Therefore, Sharpe ratio is negative when excess return is negative.

Excess return is the return on the portfolio less risk-free rate.

Therefore, excess return is negative when the (realized or expected) return on the portfolio (or fund, trading strategy, or investment) is lower than the risk-free interest rate (typically a money market rate or treasury yield).

Sharpe ratio is negative when the investment return is lower than the risk-free rate.


Related pages


parametric var formulacalculate exponential moving averageedgar 13f filingscboe vix volatility indexcboe commacd calculation excelyahoo stock symbol searchyahoo finance eurwhat is rsi in stock marketblack schole equationbull call spread exampleskewness and kurtosis calculatorfat tails kurtosiscboe vix chartdeviate defhow to trade vix optionsstock price volatility formulaoptions vs futures advantagesultra short etfshow to draw break even chart in excelcoefficient of variation calculator excelvariance formula for excelvix options tradingdelta of put option formulablack scholes pricing modelvelocityshares daily inverse vix short term etncompute average in excelannualized return calculation excelcomvixblack scholes pricing model calculatorhow to calculate sample variance in excelvix index explainedcapitalization weighted indexgoal seek formula in excel 2010straddle payoffcboe options quotescreating formulas in excelbear put spread exampleshort strangle option strategyhow to compute variance in excelprice weighted index formulacontango explainedfifo and weighted average methodannualized volatilitywacc componentsannualized standard deviationhedge fund 13f filingsmacd indicatorexcel exp functiontrading option greeksdelta symbol excelcalculating sharpe ratio in excelcalculating standard deviation in excel3x etfs listvelocity sharesvxx inversevariance defdaily closing stock pricesliquid etfssoros fund management portfolioform 13f filingswhat is the formula for sample varianceblack scholes put option calculatornatural logarithm excelfinance variance formulafinding standard deviation excelvariance calculator formulastd dev calcbull put spread calculatorhow to calculate standard deviation in excel 2007annualizing volatility