Incremental Sharpe and Other Performance Ratios

18 Pages Posted: 26 Aug 2018 Last revised: 24 Sep 2018

See all articles by Eric Benhamou

Eric Benhamou

Université Paris Dauphine; EB AI Advisory; AI For Alpha

Beatrice Guez

AI For Alpha

Date Written: July 26, 2018

Abstract

We present a new methodology of computing incremental contribution for performance ratios for portfolio like Sharpe, Treynor, Calmar or Sterling ratios. Using Euler's ho- mogeneous function theorem, we are able to decompose these performance ratios as a linear combination of individual modi ed performance ratios. This allows under- standing the drivers of these performance ratios as well as deriving a condition for a new asset to provide incremental performance for the portfolio. We provide various numerical examples of this performance ratio decomposition.

Keywords: C12, G11

JEL Classification: Sharpe, Treynor, recovery, incremental Sharpe ratio, portfolio diversification

Suggested Citation

Benhamou, Eric and Guez, Beatrice, Incremental Sharpe and Other Performance Ratios (July 26, 2018). Available at SSRN: https://ssrn.com/abstract=3213265 or http://dx.doi.org/10.2139/ssrn.3213265

Eric Benhamou (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

EB AI Advisory ( email )

35 Boulevard d'Inkermann
Neuilly sur Seine, 92200
France

AI For Alpha ( email )

35 boulevard d'Inkermann
Neuilly sur Seine, 92200
France

Beatrice Guez

AI For Alpha ( email )

35 boulevard d'Inkermann
Neuilly sur Seine, 92200
France

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