A negative Sharpe ratio indicates
A) a contrarian management style.
B) a portfolio which failed to beat the performance of the risk free asset.
C) a portfolio which is well managed.
D) the portfolio's raw return was great than its standard deviation
E) None of the above.

Question

Quizplus · Accepted Answer

A negative Sharpe ratio indicates that the portfolio's return was lower than the return of a risk-free asset after adjusting for risk. This means that the portfolio failed to beat the performance of a risk-free asset and hence had a negative Sharpe ratio. So, option B is the correct choice. Option A, C, and D are incorrect as they do not correctly explain a negative Sharpe ratio.

A Negative Sharpe Ratio Indicates