Modified Sharpe Ratio

AAA

DEFINITION of 'Modified Sharpe Ratio'

A ratio used to calculate the risk-adjusted performance of an asset or a business strategy. The modified Sharpe ratio is a version of the original Sharpe ratio amended to include skewed/abnormal data. It is calculated by dividing the excess returns by the modified value at risk.

INVESTOPEDIA EXPLAINS 'Modified Sharpe Ratio'

A higher return for a given level of risk can be expected from the investment with the higher modified Sharpe ratio. An investment may appear to yield higher returns, making it more desirable; however, the investment may be unstable and simply reflecting a high-risk result. The ratio is useful because many volatile investment vehicles are not normally distributed.

RELATED TERMS
  1. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
  2. Roy's Safety-First Criterion - ...

    An approach to investment decisions that sets a minimum required ...
  3. Value At Risk - VaR

    A statistical technique used to measure and quantify the level ...
  4. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  5. Risk-Free Rate Of Return

    The theoretical rate of return of an investment with zero risk. ...
  6. Risk-Adjusted Return

    A concept that refines an investment's return by measuring how ...
Related Articles
  1. Understanding The Sharpe Ratio
    Bonds & Fixed Income

    Understanding The Sharpe Ratio

  2. Does Your Investment Manager Measure ...
    Personal Finance

    Does Your Investment Manager Measure ...

  3. Nobel Winners Are Economic Prizes
    Options & Futures

    Nobel Winners Are Economic Prizes

  4. Measure Your Portfolio's Performance
    Investing

    Measure Your Portfolio's Performance

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center