To calculate the sharpe ratio in python:

Installations & Python Packages
1

why "Annualise the Sharpe ratio by multiplying this entire value by 252**0.5" ?
and not only multiplying by 252?, why adding 0.5?
2

Hey Cathy,



You can express the formula as:

Annualized Sharpe Ratio = Sharpe Ratio * √252



The exponent 0.5 (or **0.5) is equivalent to taking the square root (√) in the formula for annualizing the Sharpe ratio. So, taking the square root (√) of 252 is equivalent to raising 252 to the power of 0.5.



Hope this clears your doubt.



Thanks

Rushda

3

Thank you very much! It makes sense.