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.