Sharpe of two combined uncorrelated strategies
Two independent (zero-correlation) strategies each have an annual Sharpe ratio of 1.50. They also have the same expected excess return and the same volatility. You allocate half your capital to each. What is the annualized Sharpe ratio of the combined 50/50 portfolio? (to two decimals)
Show hints (2)+
- 50/50 leaves the mean unchanged but halves the variance (zero correlation).
- Sharpe = μ / (σ/√2) = √2 × 1.50.
Answer
Reveal answer →Final answer
2.12 (± 0.01)
Want the full step-by-step worked solution? It's part of Premium - along with a worked solution for every question in the bank.
Asked at: Mixed Quant & Coding, Data-Driven Research