Does a dollar weighted Sharpe ratio calculated for a portfolio of mutual funds make sense for a point in time? The Sharpe ratio for each fund would be used in the weighting.
TIA
Dollar weighted Sharpe ratio - make sense?
Dec 28, 2006
2 Replies
I don't know how your computed Sharpe ratio will be used, but to evaluate a portfolio of mutual funds, I think it is better to compute the Sharpe ratio of the portfolio returns, which would give proper credit to portfolios of funds with low correlations to each other.
I think it would only "make sense" if it agreed with the computation of the Sharpe Ratio for the entire portfolio of funds.
Of course, the latter might be simpler to calculate.
--ron
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