Portfolio Sharpe ratio
In this exercise you are now going to calculate the Sharpe ratio of the portfolio. How do you think the portfolio Sharpe ratio will be different to the S&P500 Sharpe ratio? You'll find out in this exercise.
You have the portfolio value over time under pf_AUM and the number of months for that data under months. Last, the risk-free rate is available under rfr, which is still set to zero.
This exercise is part of the course
Introduction to Portfolio Analysis in Python
Exercise instructions
- Calculate the total return from
pf_AUMand annualized return for the period defined undermonths - Calculate the annualized volatility,
vol_pf, using the standard deviation of the returns. Use 250 trading days - Calculate the Sharpe ratio. Don't forget to subtract the risk-free rate
rfrfrom the annualized return.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Calculate total return and annualized return from price data
total_return = (____[____] - ____[____]) / ____[____]
# Annualize the total return over 4 year
annualized_return = ((1 + total_return)**(____/months))-1
# Create the returns data
pf_returns = pf_AUM.pct_change()
# Calculate annualized volatility from the standard deviation
vol_pf = pf_returns.____()*____.____(____)
# Calculate the Sharpe ratio
sharpe_ratio = ((____ - ____) /____)
print (sharpe_ratio)