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Sharpe Ratio, Treynor Ratio and Jensen's Alpha (Calculations for CFA® and FRM® Exams)
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- เผยแพร่เมื่อ 18 ส.ค. 2024
- AnalystPrep's Concept Capsules for CFA® and FRM® Exams
This series of video lessons is intended to review the main calculations required in your CFA and FRM exams.
For Level I Video Lessons, Study Notes, Question Bank, CBT Mock Exams & More: analystprep.co...
For FRM (Part I & Part II) Video Lessons, Study Notes, Question Bank, CBT Mock Exams & More: analystprep.co...
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Sharpe Ratio
The Sharpe Ratio is defined as the portfolio risk premium divided by the portfolio risk. The Sharpe ratio, or reward-to-variability ratio, is the slope of the capital allocation line (CAL). The greater the slope (higher number) the better the asset.
The Sharpe Ratio defines the risk in terms of standard deviation, which is a measure of total risk. Hence, it includes both systematic as well as unsystematic risk.
Treynor Ratio
The Treynor ratio is an extension of the Sharpe ratio that instead of using total risk uses beta or systematic risk in the denominator. As such, this is better suited to investors who hold diversified portfolios.
As with the Sharpe ratio, the Treynor ratio requires positive numerators to give meaningful comparative results and, the Treynor ratio does not work for negative beta assets. Also, while both the Sharpe and Treynor ratios can rank portfolios, they do not provide information on whether the portfolios are better than the market portfolio or information about the degree of superiority of a higher ratio portfolio over a lower ratio portfolio.
Jensen's Alpha
Jensen's alpha is based on systematic risk. The daily returns of the portfolio are regressed against the daily returns of the market in order to compute a measure of this systematic risk in the same manner as the CAPM. The difference between the actual return of the portfolio and the calculated or modeled risk-adjusted return is a measure of performance relative to the market.
If alpha is positive, the portfolio has outperformed the market whereas a negative value indicates underperformance. The values of alpha can also be used to rank portfolios or the managers of those portfolios with the alpha being a representation of the maximum an investor should pay for the active management of that portfolio.
Very well explained. Only somebody with an in-depth understanding of these concepts can explain it so succinctly. Thanks bro.
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No doubts left, well explained!
Very well explained, covered all the aspects needed. well done👍
Glad you liked it!
Am glad u also explain the formula. Many teachers just give the formula without explaining it's meaning and thus usage.
I don’t know how I found this page but I am quite happy to say the least, this combined with the Schweser material is the perfect to learn the material.
Glad you like it!
Thank you, well explained
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Thanks for explaining these measurements very well..
Most welcome 😊
great video
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Very well done...succinct and to the point. Very helpful
Definitely gonna pass my exams , thank you so much!!
You can do it!
Amazing help thanks to you i will pass my exam
Most welcome 😊 If you like our video lessons, it would be helpful to spread the word if you could leave us a review here: www.trustpilot.com/review/analystprep.com
All points are clearly explained.
To the point explanation, Nice.
You're welcome!
Excellent, just subscribed
Welcome aboard! If you like our video lessons, it would be appreciated if you could leave us a review at www.trustpilot.com/review/analystprep.com
Thank you so much!!
You're very welcome!
Beautifully explained 🙌
Thanks a lot 😊 If you like our video lessons, it would be appreciated if you could leave us a review at www.trustpilot.com/review/analystprep.com
Great video- everything is well explained!!
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great video thanks
Glad you enjoyed it
The explanation was done so well I'm able to help my friends thank you sir
Thank you for this. This is very lucidly explained !
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Thank you for such great content
thank you so much, a great way of teaching
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very very useful thank you Mr. Arun
Thank you very very much! You are an amazing teacher!
Very well explained. Thank you so much. Very helpful
Thank you very much for the in-depth explanation. Extremely useful Sir.
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very useful session. Thanks, Nilay Sir!!!
Always welcome
helpful, can you do the calculations as well for better understanding for someone who is very new to the topic that would be a good way to explain the calculation behind the results.
Very helpful. Thank you.
Glad it was helpful! Good luck on your exam!
Excellent. Very well explained
Many thanks for your detailed explanation. I am trying to figure out the order of preference between these ratio performances between two or more fund options
very good explanation .thank you
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Is there a difference between Treynor Mazuy ratio and Treynor ratio? Or it is the same ratio just have different names?
Really great video. Gives great risk intuition for portfolio construction and choosing.
Glad you think so!
Thank you sir. Exam on Wednesday
All the best!
Thank you very much Arun, explain a lot & clear in my brain now :)
Happy to help!
Thank you so much!
You're welcome!
Very well explained...
Glad it was helpful!
It is really very helpful thanks for this content sir😊
Simple and great
Excellent video👌
Thank you 👍
Very well explained sir
Thanks for liking!
verryy useful.. is FRM part 2 also explained by You in the course? thanks in advance
Do you have the video where you have calculated these ratios for 5 year daily returns? That is the real deal
Hi . Was wondering if you offer tutoring
I have a doubt what if the standard deviation is not available in the question how do we find the standard deviation and solve it with only few informations like t-bills, s&p500, average annual return and beta ? And asking us to find the answer using only sharpe method
Awesome!!!!!
Love u bro
How to calculate betA??
Very helpful
Glad it helped!
Thank you 😇
You're welcome 😊
Thank u
You're welcome 😊 If you like our video lessons, it would be helpful to spread the word if you could leave us a review here: www.trustpilot.com/review/analystprep.com
goooooood job
Thank you!
CA final student here. Few faculties just told to mug the formula
How to calculate the expected return?
Please sir send for metrial
Is there any place where we can create our own portfolio and get its risk-adjusted return?
You have to program it. Use Python and the optimizers available. Theres code online if you just type your comment + Python code/tutorial
Sir