Sharpe Ratio Strategy - How to Select Stocks or Mutual Funds (Hindi)

Sharpe Ratio Strategy can help you to select Stocks or Mutual Funds. Sharpe Ratio tells by taking additional risk, how much incremental return you will get. Normally, while selecting any stock or mutual fund, an investor check only the performance. They completely ignore the risk involved. It is important to understand whether the high return is the result of smart investment or due to high risk. Therefore, Sharpe ratio helps you to find whether the investment is high risk or smart investment.
Modern Portfolio Theory helps you to optimize your portfolio by maximizing return by taking least risk. There are 5 technical risk ratios i.e. alpha, beta, sharpe, Standard Deviation and R Squared. You can decide your percentage allocation of the portfolio and evaluate the same.
The formula of sharpe ratio is a difference of expected return and the risk free return divided by the standard deviation. Standard deviation is basically the fluctuation in returns. Good sharpe ratio is more than 1 as per international standards.
You can benchmark the sharpe ratio against the index or category or other similar funds. If you are planning to invest in a share or mutual fund then You can compare pre and post sharpe ratio after investment. If the sharpe ratio increase then it is advisable to go ahead else you can find some other investment options.
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