夏普比率:风险分析的害群之马_RCM Alternatives_HIT45

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Sharpe Ratio: the Black Sheep of Risk Analysis - RCM Alternatives​www.rcmalternatives.com图标

We can’t believe it’s been almost 4 years since we last spent time talking about the most popular, and most controversial risk adjusted ratio out there, the Sharpe Ratio. For those of you who have never heard of it before, the “e” is silent. We had a newcomer in the office that pronounced it with an “e” like the Sharpie highlighter until someone finally had mercy and corrected them.

难以置信,自从我们上次花时间讨论夏普比率(Sharpe Ratio)以来,已经快4年了。对于那些以前从未听说过这个的人来说,“e”是无声的。我们办公室里有个新来的人,用Sharpie突出显示的“e”发音,直到最后有人善意地纠正了他。

Now just what is a Risk Adjusted Ratio. They are used quite often in the Alternative Investment Space, because they seek to evaluate investments not only on returns, but on how much risk it takes to get those returns. The Sharpe ratio is one of the most frequently used risk adjusted ratios, and calculates return per unit of risk as measured by volatility. Here’s the formula:

“(Compound Annual Rate of Return – Risk Free Rate) / (Annualized Standard Deviation of Returns)”



A Little History

The idea of the Sharpe Ratio was developed by Stanford professor Dr. William Forsyth Sharpe in 1966, based on an idea presented over a decade earlier by A. D. Roy, though it was eventually edited in 1994 by Sharpe himself to reflect the fact that a risk-free rate changes with time. It started to become heavily used in the financial space in the 80s and 90s, and to this day is still found as a prime metric for any alternative investment.


夏普比率的概念是由斯坦福大学教授威廉·福赛斯·夏普博士(Dr. William Forsyth Sharpe)在1966年根据A.D.罗伊(A. D. Roy)十多年前提出的一个想法发展起来的,尽管夏普本人在1994年最终编辑了夏普比率,以反映无风险利率随时间变化的事实。在80年代和90年代,它开始在金融领域广泛使用,直到今天仍被视为评估任何另类投资的首要指标。

Risk Free? I’ll take some of that please.


The inclusion of the term ‘risk free’ has caused more than a few people pause, and Mr. Sharpe surely came up with the ratio before debt ceiling debates and the US losing a notch on its credit rating. But the idea is that any portion of an investment (or portfolio’s return) based on things like US Treasury Bills shouldn’t be included in the ratio, as it will push up the return without having any effect on the volatility (in the world of volatility = risk, there’s no volatility if you don’t have risk of losing money – check with the boys at Long Term Capital Management and their off the run T-Bill portfolio if that’s always true). Most practioners these days remove the risk free rate, in part because rates have been zero for so long, and in part because the idea of a risk free rate has been tarnished some.

“无风险”一词的兴起已经引起了很多人的犹豫不决,夏普先生在债务上限辩论之前肯定提出了这个比率,而美国在信用评级上也被降了一个等级。但这种想法是,任何基于美国国债之类的东西的投资(或投资组合的回报)都不应该包括在这个比率中,因为它会推高回报率,而不会对波动性产生任何影响(在波动与风险相等同的世界里,如果你没有损失资金的风险,就不存在波动——与长期资本管理公司(Long Term Capital Management)的伙计们核对一下,以及他们持有的之前发行的短期债券(T-Bill)投资组合(如果这总是正确的话)。最近大多数从业者都不再关注无风险利率,部分原因是长期以来利率一直为零,部分原因是无风险利率的观念受到了一些玷污。

But what does a 0.58 Sharpe Ratio Mean?

When you put all those numbers together, you are left with a number like 0.58 or 0.92. This is confusing to some because it’s not actually showing a percentage return or the like. Meaning, we can’t visualize what 0.58 looks like on a chart, or if that means more or less returns. It would be easier if investments had Sharpe ratios of 2, 3,4, or 5 – and we could intuitively know that a Sharpe of 2 means returns twice as much return as volatility, and 5 five times the volatility, and so on. But here in the real world, most investments are lucky to get returns that are half the volatility (a 0.50 Sharpe). All told, if you’re just look at the number by itself, nothing, it doesn’t mean much until you compare it with another investment’s Sharpe Ratio. For instance the Attain Trend Following Fund has a Sharpe Ratio of 0.89, while the S&P 500 has a Sharpe of 0.55 over that same time span {Past performance is not necessarily indicative of future results}. Simple right?


当你把所有这些数字放在一起时,剩下的数字是0.58或0.92。这让一些人感到困惑,因为它实际上没有显示百分比回报率或者类似的回报表现。也就是说,我们不能想象0.58在图表上的样子,或者它是否意味着或多或少的回报。如果投资的夏普比率是2、3、4或5,那么就比较容易了——我们可以直观地知道,夏普比率为2意味着回报率是波动性的两倍,回报率是波动性的五倍,等等。但在现实世界中,大多数投资都幸运地获得了波动的一半(0.50夏普)的回报。总而言之,如果你只看数字本身,它并没有多大意义,直到你将它与另一个投资的夏普比率进行比较。例如,获得趋势跟踪基金(Attain Trend Following Fund)具有0.89的夏普比率,而标准普尔500在同一时间段内夏普比率为0.55。{过去的表现不一定表示未来的结果}。这样就简单明了了,不是吗?

Why Don’t I hear about this more often?

Because it’s math, and most marketers steer clear of that in their messaging. And because the main advertisers of things financial (mutual funds, insurance, retirement plans, and ETFs) are benchmarked to stock and bond indices – thus don’t much care to advertise how much return their delivering per unit of risk – they just want to talk about how much return they are delivering compared to their benchmark.

But you might start hearing more about it in Alternatives, like Managed Futures outperforming stocks in 2014, become more mainstream. Alternative Investments don’t care if they’re outperforming of underperforming the stock market, or other investments. Alternative Investments try and deliver (for the most part) better risk adjusted returns than traditional stock and bond investments.




Newsflash: the Sharpe Ratio has some Issues

It would be easy to end the post there. Convince you the Sharpe Ratio is just one of those things you should be more aware of. But we wouldn’t be telling you the real issue. The Sharpe Ratio gets a bad rap, and while it’s not as bad as some make it out to be, there is some truth what they have to say. The main complaint is this ratio relies on the notions that risk equals volatility and that volatility is bad. We’ve talked time and time again, that volatility isn’t “bad” per se; and simple logic will tell you that the more you reduce volatility, the less likely you are to be able to capture higher returns. But the bigger problem for the Sharpe is that it treats all volatility the same. Basically, the ratio penalizes strategies that have upside volatility (said another way… big positive returns), and some people just don’t think big positive returns should be viewed as a negative thing.


以这个话题结束这篇文章很容易。让你相信夏普比率只是那些你应该更加注意的事情之一。但我们不会告诉你真正的问题。夏普比率受到一些人猛烈抨击,虽然它并不像有些人想象的那么糟糕,但这些争议不无道理。其中最主要的争议是这个比率依赖于风险等于波动性以及波动性都是负面的概念。我们曾不止一次提到,波动性本身并不“坏”;简单的逻辑将告诉您,波动性下降越多,获取较高回报的可能性就越小。但对夏普比率来说,更大的问题是它将所有波动性无论上升还是下行都一视同仁。 基本上,这个比率惩罚了具有上行波动性的策略(换言之,较高的正回报),一些人只是不认为大的正回报应该被视为负面的东西。

A Better Way?

We argue that using one risked adjusted ratio alone doesn’t tell you the whole story, and is really just one chapter in the story of each investment. It’s hard to argue there isn’t more to risk than just volatility, when there’s so much more to look at; such as drawdown, downside volatility, and many more. These other risk factors are incorporated into other ratios in the following ways:



Negative Returns: In order to avoid penalizing upside volatility, some investors in the industry prefer to utilize the Sortino Ratio. The formula is the same as the Sharpe, although the denominator is the Annualized Standard Deviation of Negative Returns. But no ratio is perfect, including the Sortino. The issue with this concept of only looking at the negative returns, is it assumes that positive and negative performance is equally weighted over time. For example, there are just as many months of positive performance as negative. This is where Red Rock Capital comes in; they argue the Sortino Ratio should look at the deviations of the realized return’s underperformance from the target return.


Drawdown: This is the most common “risk” the financial world talks about, although it remains an underused metric for anyone outside of the alternatives space. The simple definition of a drawdown is the pain experienced by an investor between a peak (new highs) and subsequent valley (a low point before moving higher). But there are multiple variations of a drawdown.


Max Drawdown: The Max Drawdown is the worst depth from peak to valley experienced since the investments inception. This is yet another component when considering risk when using the Mar and Calmar Ratios. These ratios aim to find how much return is offered per unit of risk, as measured by drawdown (Comp Ror) / (Max DD).

最大回撤:最大回撤是自投资开始以来从高峰到低谷经历的最糟糕的深度。这是使用Mar和Calmar比率时考虑风险的另一个组成部分。这些比率的目的是以回撤——复合收入回报率(Comp Ror)/最大回撤(Max DD)的值来衡量每单位风险提供多少回报。

Average Drawdown: Say you care more about the average pain incurred, instead of just the worst period. For those with such a view, the Sterling Ratio (more info here) steps in to measure returns over risk, as measured by the average annual drawdown.

平均回撤:假如说你更关心疼痛/损失均值,而不只是最糟糕时期的表现,对于那些有这种观点的人,斯特林比率(Sterling Ratio)(点击此处获取更多信息)采取措施来衡量风险回报率,如平均年回撤。

Overall Pain: We’ll admit this isn’t a technical term for risk, but some people want to try to figure out a way to merge the concepts of worst case pain and the average pain together. That’s the goal of the appropriately named Ulcer Index, which measures the downside volatility, frequency of losses, magnitude of drawdown, and length of drawdown together into one number, measuring the overall pain an investor would have felt. This is one of the only risk adjusted ratios where the lower the ratio, the less pain an investor experiences to get the returns.

整体疼痛:我们承认这不是一个风险术语,但是有些人想找出一种方法,把最糟糕情况下的疼痛和平均疼痛的概念结合在一起。这就是Ulcer指数的目标,它把下跌的波动性、损失的频率、下跌的幅度、以及的下跌期限的长度合计为一个数字, 以此来衡量投资者可能承受的整体痛苦。这是仅有的比率越低,投资者获得收益的痛苦就越小的风险调整比率之一。