Explain the meaning of Sharpe Ratio and Sortino Ratio.
When selecting stocks for stock investment, it is generally considered good to select stocks with high expected returns and low risk (daily volatility, volatility). The Sharpe Ratio shows the relationship between return and risk. The formula for Sharpe Ratio is defined below.
Sharpe Ratio = \biggl({\frac{R_{p}-R_{f}}{σ_{p}}} \biggl)
$ R_ {p}: $ Represents the expected return. Please see here for the actual calculation method. $ R_ {f}: $ Indicates a risk-free return. It's a profit you can get without doing anything. (Example: dividend, interest) $ σ_ {p}: $ Represents Volatility. Please see here for the actual calculation method.
From the above formula, the Sharpe Ratio is large = high expected return & low risk (Volatility), which is generally a good tendency. On the other hand, if the Sharpe Ratio is low, it means that the risk (Volarility) is high, and it means that the loss will be large if you lose. Generally, it is recommended to buy a stock with $ Sharpe Ratio> 1 $. </ b>
If you want to know more about Sharpe Ratio, you can find it on this site.
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