In the world of finance, the Sharpe ratio is king. And it turns out that bitcoin defies all competition.
Bitcoin Sharpe Ratio
With an increase of 160% since the start of the year, no other asset is doing better than bitcoin. Here are some annual performances of other equally popular assets:
-Gold: 11%
-American 10-year bonds: 3%
-S&P: 26%
-Tesla: 100%
-Microsoft: 57%
However, these figures do not tell the whole story. For equal performance, it is better to invest in an asset with lower volatility.
This year, bitcoin not only shows the best performance, but also the best Sharpe ratiojust behind the electronic chip designer NVIDIA:
In the following example, stock A has a higher Sharpe ratio than stock B.
-Share A: closes 2023 up 10% after posting a low of -5% during the year.
-Share B: closes 2023 up 10% after posting a low of -50% during the year.
It was better to invest in stock A.
The Sharpe ratio expresses the performance of an asset as a function of its risk (its volatility). It allows you to see at a glance whether a high return is also the consequence of greater volatility, and therefore increased risk.
More precisely, the Sharpe ratio is calculated by dividing the performance of an asset by a risk indicator, in other words its volatility (the standard deviation of the asset’s profitability).
Bitcoin’s high Sharpe ratio is not new. Here is the four-year moving average of bitcoin’s Sharpe ratio compared to other assets.
In short, the performance/risk ratio of bitcoin is excellent. Bitcoin’s Sharpe ratio exceeds that of all major asset classes over a medium-term horizon.
Bitcoin proves that high return does not always mean high risk. Hence the arrival of Wall Street with its ETFs.
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