Sharpe Ratio Explained

Sharpe ratio measures how much excess return a portfolio earns per unit of volatility risk.

How to Interpret Sharpe

  • Higher Sharpe generally means better return efficiency for the risk taken.
  • Compare Sharpe across similar strategies and time windows.
  • Pair Sharpe with drawdown and concentration analysis for full context.

How to Improve Sharpe

  • Reduce concentration in top holdings and correlated clusters.
  • Lower volatility drag with broader diversification.
  • Optimize allocation rather than only chasing return.
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