Definition of Sharpe Ratio

Excerpts from Building Wealth with Managed Futures

Sharpe Ratio is a risk-adjusted return statistic "... that is calculated by dividing Excess Return by the Risk-Free Rate of Return." Page 47

Detailed information on this and other statistical performance measurements used by the managed futures industry to evaluate CTA performance can be found in Building Wealth with Managed Futures an easy to understand guide to investing in managed futures."      To Purchase

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The Sharpe Ratio first calculates Excess Return
Excess Return = Average Monthly Rate Of Return - Monthly Risk-Free Rate Of Return

Then Excess Return is then divided by the Monthly Standard Deviation

Monthly Sharpe Ratio = Excess Return / Monthly Standard Deviation

The Monthly Sharpe Ratio is then annualized