Evaluating John's Portfolio Performance with Sharpe Ratio

Hard Performance Evaluation Risk-adjusted Performance

John is a portfolio manager who wants to evaluate the performance of his investment portfolio over the past year. He has decided to use the Sharpe Ratio as a measure of risk-adjusted return. John’s portfolio generated a return of 12% while the risk-free rate during this period was 3%. The standard deviation of the portfolio’s returns was 8%. Based on this information, which of the following statements regarding John's portfolio performance evaluation is accurate?

John's Sharpe Ratio of 1.125 indicates that he achieved a superior risk-adjusted return compared to the market average.

A Sharpe Ratio less than 1 suggests that John is taking on more risk than the market, without adequate compensation.

John’s portfolio is likely performing poorly in terms of risk-adjusted performance since his Sharpe Ratio is below the typically desired level of 2.

Hint

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% Correct64%