The Sharpe Ratio Paradox: Why Still Invest In Venture Capital?

2 min read

Sharpe ratio is a way of quantifying returns based on risk, specifically it is the average return earned in excess of the risk-free rate per unit of volatility or total risk.There are some limitations, for instance slightly different distributions of returns for a portfolio give quite different Sharpe ratios. But overall it’s a widely accepted metric. Over the past 25 years, the average annual Sharpe ratio for the S&P 500 has been 1 and it is often taken as the baseline for judging different asset classes. Anything lower than 1 is considered a bad investment since you could just put…...

This article is free to read

Login to read the full article


OR

By subscribing to our main site, you will also be subscribed to DDIntel - our regular letter showcasing our featured articles and applications.

Amit Garg I have been in Silicon Valley for 20 years -- at Samsung NEXT Ventures, running my own startup (as of May 2019 a series D that has raised $120M and valued at $450M), at Norwest Ventures, and doing product and analytics at Google. My academic training is BS in computer science and MS in biomedical informatics, both from Stanford, and MBA from Harvard. I speak natively 3 languages, live carbon-neutral, am a 70.3 Ironman finisher, and have built a hospital in rural India serving 100,000 people.