The Sharpe Ratio: Risk Adjusted Return Series part 1

In this video I explain the Sharpe Ratio and why it's an important risk adjusted metric to help us gauge the long-term viability of an investment. When analyzing performance, the rate of return of an investment can be deceiving because it doesn't take into account the risk required to achieve it. To get the full picture we need to factor in the risk, which will give us more information on whether the rate of return is actually sustainable. The most basic and most common risk adjusted metric is called the Sharpe Ratio.

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Chapters:
0:00 Introduction
1:10 Sharpe Ratio formula
2:17 What do Sharpe Ratio values mean?
3:35 Example using XIV vs S&P 500
4:47 Why does Sharpe Ratio matter?

Brent Osachoff , volatility trading strategies, VTS , VTS options, volatility trading , Volatility ETPs, options trading , investing , stock market, VIX, VXX, UVXY

[el-sig]

I've been a forex trader for years and only begining to understand this stuff about RARs now. Thanks for this vid. I'll certainly watch all the others in the series!

[jt]

Very, very well explained for the layman. My statistics can use a brushing up and you gave just enough detail to clear the fog. Risk Adjusted Return is indeed the neglected number when it comes to marketing of products. Goes to show that slow and steady wins the race. I guess the trick is to get in *early* to let good ol' compounding do the heavy lifting...

[johnlucier]

Great Video! Really helpful for a young finance student trying to get concepts explained simply

[anonymous]

Thank you! Always wondered what is a risk adjusted return! I have just subscribed and plan to navigate the channel.

[investingdweeb]

Thank you for the explanation it was really insightful!

Here’s what I was able to understand, please correct me if I’m wrong.

Investing in a stock or etf that has a high or good sharpe ratio is way better than investing in one that has a low one (that is below 1) because you’ll have consistent high returns than fluctuating returns that that don’t really sum up to much in the long run?

[evilzzzability]

Excellent stuff. It's my experience that most investors have no concept of what risk they are taking in focussing on maximizing returns.

[flippantfishtaco]

This video was extremely helpful, so thank you very much.
Also, just to provide a little constructive feedback, I had to step back a couple times to the equation to get it, and when you mentioned standard deviation, you went kinda fast through that part. I'd suggest going a little slower through that bit, and a quick visual of some different equity curves having differently sized deviation, probably could help.

[dallinorr]

Thanks for explaining Sharpe Ratio to me, award-winning actor Timothy Olyphant.

[LeroyDunn]

Excellent video. Easy to follow. Very informative. Eye opening

[luxushauseragency]

Nice video, good explanations, easy to understand.

[aks]

Hi, Is there a website dedicated to benchmarking funds according to the Sharp Ratio, Overall performance, and Ulcer index ?
Thanks

[bozosmith]

You did not explained how you calculate the denominator. Standard deviation of what and why?

[jorgegonzalez]

hi, great videos i am trying to figure the share ratio on a fund i am launching. (still with phony money fase) but almost one year history. I am trying to figure out if i am doing it correctly. is there a way i could send you my excel and you can tell me if its ok and also how to present the results in my distribution list. thank you

[CalumKemptonMusic]

how long of a period should you calculate the sharpe ratio over? 3, 5, 10, 20 yrs?

[anasmokhtari]

i got all the interpretations results
but what does the return with risk - the free risk return refers to?
for ex we have a return with risk is: 14 % and without is 4%,
what does 10% refers too?

[triptirathi]

How do we calculate risk adjusted returns for an equity?

[sergpop]

When can one find the Annual Risk number for an index / ETF?

[BeginInvest]

Hi, the annual risk... It's the volatility?

[Torontogal]

Where does one find the Annual Risk number for any stock?

[hexmaniac]

Have you looked at the Sharpe Ratio of Bitcoin it is way higher than anything else