I'm trying to evaluate the performance of a couple of stock portfolios
and I need to calculate Sharpe,Treynor Ratios, Information Ratio and
also Jensen Measure.
I have a monthly closing prices for all the stocks in a portfolio for
48 months.
My problem is that i'm not sure which rate of return to use in the
ratios..i figured that the annualized rate of return for the 48 months
would be better than just average annual rate of return. How should I
compute the annualized rate of return from the data i have?
I found an article with an example (of what i think I should do) of
calculation of annualized return with the mothly data at
http://www.russell.com/ca/Investor_S..._of_Return.asp
But I still don't have a formula and I'm not really sure whether it's a
right way.
Also when I calculate those compound indicators(Sharpe) do I have to
use annualized standard deviaton or is it ok to use just a standard
deviaton of the monthly returns?
Too many questions I know, but I'm kinda lost.
I guess I might as well stick with the average annual rate which would
make things less complicated:)
Thanx for your help