Sharpe Ratio
The Sharpe Ratio will be used to measure the performance of our portfolio in terms of risk and
return.
Rp  Rf
_
Ơ
p
Where Rp is the average return of the portfolio and Rf is the risk free rate, in this case we will
use the rate of return for 30 year Treasury Bills on April 30, 2010 which was 4.53%.
Ơ
p is the
standard deviation for the portfolio, which was calculated based on its returns compared to that
of the Russell 3000 (complete computation can be found in the appendix).
We will convert the average daily return of our portfolio (.88%/48 = .01833%) to an annual
percent as follows:
.01833%/100 = 0.0001833 + 1=1.0001833 which will be raised to the 365th power
1.0001833
⁶⁵
= 1.0691868100764137967338704823677  1 = 0.0691868100764137 * 100 =
6.9186% annual return
As previously mentioned the complete computation of the standard deviation for the portfolio
can be found in the appendix, however we will go over briefly how the standard deviation was
reached.
The standard deviation is simply the square root of the variance.
In order to determine the
variance we first had to compute the daily return for our portfolio as well as get the recorded
daily return from the Russell 3000. Next the average return was computed but taking the total of
all daily returns, for our portfolio and again for the Russell 3000, and then divided each by the
number of active days (48) to determine the expected average return. Next we determine the
return deviation for both our portfolio and the Russell 3000 by subtracting the average return
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 '09
 Yu,Oliver
 Standard Deviation, Capital Asset Pricing Model, Modern portfolio theory, Treynor ratio, Jensen's alpha

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