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The Hidden Reality of High Sharpe Ratios: Why Even Elite Strategies Face Monthly Losses
- Fabio Capela
- Risk management , Investment strategy , Portfolio management , Quantitative finance , Statistical analysis , Performance evaluation , Investment mathematics , Risk assessment
The Sharpe ratio stands as one of finance’s most celebrated metrics, elegantly capturing risk-adjusted returns in a single number. An annualized Sharpe ratio of 2.0 sounds impressive—it represents exceptional risk-adjusted performance that places a strategy in the top tier of investment approaches. Yet here lies a reality that surprises many investors: even strategies with outstanding annualized Sharpe ratios experience negative months far more frequently than intuition suggests.
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