This example shows how to compute the Sharpe ratio using the mean return of a cash asset as the return for the riskless asset.

Given asset return data and the riskless asset return, the Sharpe ratio is calculated:

load FundMarketCash 
Returns = tick2ret(TestData);
Riskless = mean(Returns(:,3))

Riskless = 0.0017

Sharpe = sharpe(Returns, Riskless)

Sharpe = 1×3

    0.0886    0.0315         0

The Sharpe ratio of the example fund is significantly higher than the Sharpe ratio of the market. As is demonstrated with portalpha, this translates into a strong risk-adjusted return. Since the Cash asset is the same as Riskless, it makes sense that its Sharpe ratio is 0. The Sharpe ratio is calculated with the mean of cash returns. The Sharpe ratio can also be calculated with the cash return series as input for the riskless asset.

Sharpe = sharpe(Returns, Returns(:,3))

Sharpe = 1×3

    0.0886    0.0315         0

When using the Portfolio object, you can use the estimateMaxSharpeRatio function to estimate an efficient portfolio that maximizes the Sharpe ratio. For more information, see Efficient Portfolio That Maximizes Sharpe Ratio.