Risk Adjusted Relative Return
(in exces of risk free rate)
Notes:
Volatilities and betas are forecast from RiskMetrics
statistics for the indicated date, using an efficiently
hedged global index as a proxy for the "market".
The Sharpe Ratio measures the ratio of expected
return, expressed as beta, relative to forecast
risk, expressed as volatility. It is defined such
that it is equal to 1.00 for an efficiently hedged
global index.
The Optimally Hedged Portfolio is the most efficient
portfolio for the forecast period that can be constructed
from RiskMetrics statistics, allowing for measurement
uncertainties.
Risk-Adjusted Relative Return represents the annualised
expected return in excess of the risk free rate
of an investment in the stockmarket which has been
blended with a long or short risk free investment
to achieve a 20% level of volatility (also known
as a RiskGrade of 100). It is estimated from the
Sharpe Ratio, assuming an equity risk premium of
6% per annum in excess of the risk free rate for
an investment in the global index.
RiskMetrics makes its statistics freely available
with a time lag of approximately six months.
To learn how to use the HedgeAnalysis application
to measure and improve the efficiency of any diversifed portfolio visit the
HedgeAnalysis downloads page.