 # Arithmetic or Geometric Mean?

Do we use arithmetic or geometric mean to calculate - 1. Sharpe Ratio 2. Coefficient of Variation Thanks!!

arithmetic

I think I will use AM for both

Geo for sharpe.

Remember your returns mean can be totally off if user arithmetic.

speaking of this topic, did anyone see a Q like this on a mock? Where did they get the risk free rate from?

Mock Exam Q - Arithmetic return: 14.3% Geo Return: 12.7% Variance: 380 Beta: 1.35 RFR: 4.25 What are the Coefficient of Variation (CV) and Sharpe Ratio (SR) A. CV 1.36; SR 0.52 B. CV 1.36; SR 7.44 C. CV 1.53; SR: 0.52 D. CV 1.53; SR 7.44 Sorry to kill the suspense, the answer is C. But C means that Geo is used for CV and Arithmetic Mean is used for SR!!!

rish, you are using a bootlegged version of the mock 1 answers. the guy makes lots of other mistakes. arithmetic sample mean (Xbar) is used for both

supersharpshooter Wrote: ------------------------------------------------------- > rish, you are using a bootlegged version of the > mock 1 answers. the guy makes lots of other > mistakes. > > arithmetic sample mean (Xbar) is used for both i second that - arithmetic mean is used for both. i wasn’t sure when i took the mock, but after plugging and chugging, the arithmetic mean produced a choice that could be selected and the geometric mean did not

gotcha thanks

super-i have that bootleg, do you have the correct one for mock 2? thx if so. tjvedder@gmail.com

So the answer is A? When do you use geometric mean (other than for time weighted returns)? The geometric mean is superior to the arithmetic mean for describing historical returns because it provides a compound rate of return

tvPM Wrote: ------------------------------------------------------- > super-i have that bootleg, do you have the correct > one for mock 2? thx if so. tjvedder@gmail.com sorry, don’t have mock 2 answers nc_analyst Wrote: ------------------------------------------------------- > So the answer is A? When do you use geometric mean > (other than for time weighted returns)? > > > > > > > > The geometric mean is superior to the arithmetic > mean for describing historical returns because it > provides a compound rate of return i think that if you need to compute some sort of statistical measure you will need to use the arithmetic mean - e.g. for covariance, coefficient of variation, kurtosis, etc.