DEFINITION of 'Modified Sharpe Ratio'
A ratio used to calculate the riskadjusted 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.
Next Up
BREAKING DOWN '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 highrisk result. The ratio is useful because many volatile investment vehicles are not normally distributed.
RELATED TERMS

Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Sterling Ratio
A ratio used mainly in the context of hedge funds. This riskreward ... 
Accounting Ratio
A way of expressing the relationship between one accounting result ... 
Policyholder Dividend Ratio
The policyholder dividend ratio is a measurement of the profitability ... 
Risk/Reward Ratio
A ratio used by many investors to compare the expected returns ... 
Activity Ratios
Accounting ratios that measure a firm's ability to convert different ...
Related Articles

Managing Wealth
Understanding The Sharpe Ratio
This simple ratio will tell you how much that extra return is really worth. 
Trading
How The Sharpe Ratio Can Oversimplify Risk
When it comes to hedge funds, this measure is not reliable on its own. 
Trading
5 Ways To Rate Your Portfolio Manager
Investopedia explains: These five performance ratios will help you measure how good your money manager is at increasing the value of your portfolio. 
Markets
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Trading
The Price To Earnings Ratio Explained
The price to earnings ratio is one of the most important ratios in investing. Find out how it is calculated, how it can be used and what it tells investors about a particular stock. 
Managing Wealth
Sharpe Ratio
Learn about this ratio developed by Nobel laureate William F. Sharpe to measure riskadjusted performance. 
Investing
Financial Ratios to Spot Companies Headed for Bankruptcy
Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy. 
Managing Wealth
Mitigating Downside With The Sortino Ratio
Differentiate between good and bad volatility with the Sortino Ratio. 
Trading
The Debt To Equity Ratio
The debt to equity ratio identifies companies that are highly leveraged and therefore a higher risk for investors. Find out how this ratio is calculated and how you can use it to evaluate a stock. 
Investing
Key Financial Ratios to Analyze Investment Banks
Find out which financial ratios are most useful when analyzing an investment bank, and why tracking capital efficiency is especially important.
RELATED FAQS

What is the difference between a Sharpe ratio and a Sortino ratio
Understand the differences between the Sharpe ratio and the Sortino ratio, two riskadjusted return on investment calculations, ... Read Answer >> 
What are the advantages and disadvantages of zerobased budgeting in accounting?
Learn how the information ratio is calculated as a riskadjusted measure of performance, and understand how it seeks to differentiate ... Read Answer >> 
What is the difference between the Sharpe ratio and alpha?
Use alpha and the Sharpe ratio to evaluate mutual funds by comparing their riskadjusted returns. Learn what modern portfolio ... Read Answer >> 
For what financial instruments is a modified duration relevant?
Find out about modified duration, financial instruments the modified duration is used for and how to calculate the modified ... Read Answer >> 
How do stock dividends affect the retained earnings account?
Understand the difference between financial ratio analysis and accounting ratio analysis. Learn why ratio analysis is important ... Read Answer >> 
What role does ratio analysis play in valuing a company?
Learn about the role of ratio analysis in determining company value, including some of the most common ratios used by modern ... Read Answer >>