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Renaissance Technologies
Acquired
The Essence of the Sharp Ratio
The essence of the sharp ratio lies in assessing a fund manager's ability to deliver superior returns adjusted for the risk taken. Achieving high returns on investments like Bitcoin doubling overnight may not necessarily make one a great investor, as it could be a fluke or due to high risk. The sharp ratio, named after William F. Sharp, measures a fund's performance relative to the risk-free rate by comparing the additional return generated per unit of increased risk. A low sharp ratio is unfavorable while a negative sharp ratio indicates underperformance against the risk-free rate. On the other hand, a high sharp ratio signifies strong returns with low volatility, making it a desirable metric in money management.
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