Performance Perspectives Blog

What does Bill Sharpe have to say?

by | Feb 6, 2012

Bill Sharpe read my recent blog post on addressing negative Sharpe ratios, and  offered the following:

Your blog post seems fine.

About the only alternative I can offer is this:

The (original) Sharpe ratio in effect compares two alternative combinations of treasury bills and portfolios (funds). The one with the higher (ex post) ratio provided a better (or less bad) average return per unit of risk. Thus if portfolio A had a higher ratio than B, a combination of bills and A with the same risk as a combination of bills and B had better (or less bad) performance.

Unfortunately such comparisons are likely to common these days, so keep up your campaign.

I think sometimes think that they don’t make sense, but deep down they do. I confess to falling into the belief that negative Sharpe ratios were a problem,  but I’ve come to believe that they are correct. The same issue often happens with time-weighted returns that sometimes don’t make sense at first glance, but in reality are perfectly correct.

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