The Sharpe ratio of the example fund is significantly higher than the Sharpe ratio of the market. As is demonstrated with portalpha, this translates into a strong risk-adjusted return. Since the Cash asset is the same as Riskless, it makes sense that its Sharpe ratio is 0. The Sharpe ratio is calculated with the mean of cash returns. The Sharpe ratio can also be calculated with the cash return series as input for the riskless asset.

(Optional) Riskless asset, specified as a either a scalar return for a riskless asset or
a vector of asset returns to be a proxy for a “riskless” asset. In either case,
the periodicity must be the same as the periodicity of Asset. For
example, if Asset is monthly data, then Cash must be
monthly returns. If no value is supplied, the default value for Cash
returns is 0.

Sharpe ratios, returned as a 1-by-NUMSERIES row
vector of Sharpe ratios for each series in Asset. Any series in
Asset with standard deviation of returns equal to 0
has a NaN value for its Sharpe ratio.

Note

If Cash is a vector, Asset and
Cash need not have the same number of returns but must have the same
periodicity of returns. The classic Sharpe ratio assumes that Cash is
riskless. In reality, a short-term cash rate is not necessarily riskless.
NaN values in the data are ignored.

References

[1] Sharpe, W. F. "Mutual Fund
Performance." Journal of Business. Vol. 39, No. 1, Part 2, January 1966,
pp. 119–138.

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