05. Calculating Sharpe Ratio Demo

Calculating Sharpe Ratio for S&P 500 Assets

• Annualized Return: Calculated to be approximately 7.6%, refined for precision by displaying additional decimal places.
• Annualized Volatility: Determined and paired with the annualized return to compute an approximate Sharpe ratio.
• Sharpe Ratio Calculation:
  • Initial calculation lacked consideration for the risk-free rate, leading to an approximate ratio of 0.39.
  • The risk-free rate needs to be considered, using historical data from a three-month Treasury bill, indicated by ticker ^IRX.
• Risk-Free Rate:
  • The average calculated from the series was approximately 1.6% after adjustment.
  • Expressed in decimals to align with the annualized return and volatility.
• Final Sharpe Ratio:
  • Adjusted for the risk-free rate. Formally calculated to be about 0.3.

This analytical approach is applicable not only to S&P 500 futures but to any asset, allowing for risk-adjusted performance assessments to understand the returns relative to the risk undertaken.