Ratios have always been an excellent way of analysing
financial performance, comparing and quantifying as they do the relationship
between two (or more) distinct parameters.
The three ratios we use are the
Sharpe Ratio, the Sortino Ratio and the Sterling Ratio. The
advantage in using these ratios to analyse the results of share
trading is that they are all risk-adjusted ratios - that is, they
all take risk into account in their calculations (though, as we will
see, they all do this in different ways, which is why it is
important to calculate all three in order to give us as detailed an
insight as possible into an advisory service's results).
The three ratios all work off the same scale: a value equal to 0
is moderate, 1 is considered good, greater than 1.5 - 2 is very
good. Of course, the converse is true for negative figures. If you are not familiar with these ratios it is suggested that
you go through each of them in turn.
