MONEY GLOBE XProfessional Risk Management · Lesson 4
Measuring performance: Sharpe and Sortino
Return per unit of risk
Professional - Gold & Platinum
In this lesson
Compare strategies by risk-adjusted return using the Sharpe, Sortino and Calmar ratios.
Key takeaways
- Sharpe = (return − risk-free rate) ÷ volatility.
- Sortino uses only downside volatility; Calmar = annual return ÷ maximum drawdown.
- A higher return is not better if it took far more risk.
- Over several years a Sharpe above ~1 is good; very high values on short tests are suspicious.
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Next lesson: The Kelly criterion
Educational information only - not financial advice.