ayaz_mahmud369

Bill Sharpe usually likes to have an "e" at the end of his ratio. ;-)

The other question that comes up a lot is what to use for the risk-free rate. The answer is to use the treasury yield that has the same maturity as your holding period. So this actually suggests that the Sharpe Ratio may differ depending on the client and their holding period.

In practice, long-term historical studies often compare equity returns to 10-year bond yields because those are suitable comparables for people who are investing for long time horizons. However, active strategies will often set it to the 90-day T-bill because they are rebalancing and adjusting their portfolios on a quarterly or monthly basis (or even faster). This is defensible, but I suspect people really like to use the 90-day T-bill because it increases the resulting Sharpe Ratio (since the 90d T-bill is usually a lower yield than the 10 year note).