C-Sharpe Optimal Portfolio

Abstract

The C-Sharpe ratio is defined as the amount of expected excess return per unit of risk, where the risk is given by the CVaR dispersion measure (not to be confused with the CVaR risk measure). Then, C-Sharpe optimal portfolio is the portfolio with the largest C-Sharpe ratio. It can be identified as the tangency CVaR efficient portfolio. We have shown that the C-Sharpe optimal portfolio weights can be evaluated by solving a straightforward linear programming (LP) problem. Numerical examples were carried out for a quarterly re-balanced portfolio of ETF's with long-only positions. The C-Sharpe optimal strategies tend to outperform, {\it i.e.} shallower draw-downs and higher rates of return, a similar strategy based on the mean-variance optimal portfolio with the largest Sharpe ratio. C-Sharpe optimal portfolio based strategies may be the preferred choice for an investor seeking some protection during draw-down events and reasonably high rates of return.

Keywords: Portfolio Optimization, C-Sharpe Ratio, Sharpe Ratio, CVaR, Expected Shortfall, Efficient Portfolio Frontier, Tangency Portfolio, Linear Programming

JEL Classification: G00, G11