SharpeRatio.modified {PerformanceAnalytics} | R Documentation

## calculate a modified Sharpe Ratio of Return/modVaR

### Description

The Sharpe ratio is simply the return per unit of risk (represented by variability). The higher the Sharpe ratio, the better the combined performance of "risk" and return.

The Sharpe Ratio is a risk-adjusted measure of return that uses standard deviation to represent risk.

A number of papers now recommend using a "modified Sharpe" ratio using a Modified Cornish-Fisher VaR as the measure of Risk.

### Usage

    SharpeRatio.modified(Ra, rf = 0, p = 0.95, scale = 1)

### Arguments

`Ra` | a vector, matrix, data frame, timeSeries or zoo object of asset returns
`rf` | risk free rate, in same period as your returns
`p` | confidence level for calculation, default p=.99
`scale` | number of periods in a year (daily scale = 252, monthly scale = 12, quarterly scale = 4)

### Details

modSharpe=mean(Ra-rf)/(modVaR(Ra,p))

or for an annualized measure:

modSharpe=Return.annualized(Ra,rf)/(modVaR(Ra,p)*sqrt(scale))

### Value

This function returns a modified Sharpe ratio for the same periodicity of the data being input (e.g., monthly data -> monthly SR)

### Note

### Author(s)

Brian G. Peterson

### References

Laurent Favre and Jose-Antonio Galeano. Mean-Modified Value-at-Risk Optimization with Hedge Funds. Journal of Alternative Investment, Fall 2002, v 5.

### See Also

`VaR.CornishFisher`
`SharpeRatio`

### Examples

    data(edhec)
    head(edhec[, 6, drop = FALSE])
    edhec.length = dim(edhec)[1]
    start = rownames(edhec[1,])
    start
    end = rownames(edhec[edhec.length,])
    rf = download.RiskFree(start=start, end=end)

    SharpeRatio.modified(edhec[, 6, drop = FALSE])
    SharpeRatio.modified(edhec[, 6, drop = FALSE], rf = .04/12)
    SharpeRatio.modified(edhec[, 6, drop = FALSE], rf = rf)

[Package PerformanceAnalytics version 0.9.5 Index]