Explanation:
Sharpe ratio = [E(Rₚ) − R_F] / σ
= (2.5 − 3.5) / 21 = −0.0476
Sortino ratio = [E(Rₚ) − R_min] / (downside deviation)
= (2.5 − 3.5) / 16 = −0.0625
The difference between these two ratios is: −0.0625 − (−0.0476) = −0.0149.
(Book 1, Module 5.3, LO 5.g)
Ultimate access to all questions.
Question 4
A portfolio manager received a report on his fund's performance. According to the report, the portfolio return was 2.5% with a standard deviation of 21% and a beta of 1.2. The risk-free rate over this period was 3.5%, the downside deviation of the portfolio was 16%, and the tracking error of the fund was 2%. What is the difference between the fund's Sortino ratio (assuming the risk-free rate is the minimum acceptable return) and its Sharpe ratio?
A
0.563.
B
0.347.
C
−0.053.
D
−0.015.
No comments yet.