High Yield Performance Flashcards
How do you calculate the Sharpe ratio?
The Sharpe ratio is calculated by taking the annualized total return of a risky asset in excess of the risk-free rate and then dividing this amount by the volatility or standard deviation of returns.
Why does the sharpe ratio strip out the risk-free rate?
The Sharpe ratio strips out the risk-free rate to focus on the risk premium, or excess compensation being provided by the risky asset.
High yield debt has historically traded with a positive correlation to _______ [Equities, Debt, Treasury Rate] and a negative correlation to the ________ [Equities, Debt, Treasury Rate].
High yield debt has historically traded with a positive correlation to equities and a negative correlation to the treasury market.
What is interest rate risk?
Interest rate risk results from changes in the federal fund rates, which is the interest rate at which depository institutions lend balances held at the Federal Reserve Bank to each other overnight.
What is the federal fund rate?
interest rate at which depository institutions lend balances held at the Federal Reserve Bank to each other overnight.
