What is Sharpe ratio?Sharpe Ratio
(Return − risk-free rate) ÷ volatility: how much excess return you earn per unit of risk.
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- Quant BasicsPortfolio Optimization and the Efficient Frontier
How should you mix stocks, bonds and gold? Plot every combination of weights, and the top-left edge is the efficient frontier: the highest return for each level of risk.
- Quant BasicsRisk Parity: Allocating by Risk
60% stocks / 40% bonds looks balanced, but stocks are far more volatile, so over 90% of the portfolio's risk actually comes from stocks. Risk parity makes each asset class contribute the same amount of risk.
Related terms
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Go to “Portfolio Optimization and the Efficient Frontier”