Features
How to pick relatively better performing shares based on historical data?
Two weeks ago, in my discussion on the Efficient Frontier titled “Upstanding Markovitz,” I pledged to provide information (not advice) on selected company shares listed in the Colombo Stock Exchange (CSE). Today, I aim to enlighten readers interested in CSE investments by exploring the use of historical data and the Sharpe ratio for evaluating stock.
Investors are constantly seeking ways to assess the performance of their investments while considering the level of risk they’re exposed to. This is where the Sharpe ratio comes into play. In this article, we will delve into what the Sharpe ratio is, its formula, and provide some practical examples to help you grasp its significance.
As discussed before, among the Nobel laureates in finance, William F. Sharpe stands out for introducing the Sharpe ratio in 1966, later formalized in 1975. This ratio, akin to Markovitz’s mean-variance analysis and Merton Howard Miller’s Modigliani–Miller theorem, contributed to their joint recognition with the 1990 Nobel Prize. The Sharpe ratio assesses risk-adjusted returns, a crucial consideration for investors.
The Sharpe ratio, expressed as (Rp – Rf) /
σp, evaluates the excess return of a portfolio (Rp) over the risk-free rate (Rf) divided by the standard deviation (σp) of the portfolio’s excess return. This calculation illuminates whether excess returns result from skilled investments or are mere products of luck and risk. A higher Sharpe ratio signals a more attractive risk-adjusted return.
While primarily designed for portfolios, the Sharpe ratio can offer insights into individual stock performance as well, why not?. For simplicity, let’s explore approximate Sharpe ratios for selected individual stocks in the CSE, providing investors with a tool for comparing risk-adjusted performance of those stocks.
It is crucial to underscore that, while the Sharpe ratio is a valuable tool, it is not without limitations. Foremost among these limitations is its reliance on historical data, and as we are well aware, history does not consistently replicate itself. Secondly, investment managers can manipulate ratios by selectively choosing measurement intervals, introducing the potential for distorting the history of risk-adjusted returns. Furthermore, the assumption of a normal distribution in standard deviation calculations may not consistently align with the actual behaviours observed in financial markets.
Acknowledging the constraints of this metric, a Sharpe ratio surpassing 1 is commonly deemed favourable, signifying that an investment provides returns in excess of the associated risks. However, interpretation depends on context, often involving comparisons with peers or market sectors. For instance, as of June 30, 2023, the S&P 500 Portfolio Sharpe ratio stands at 0.88, providing a benchmark for assessing risk-adjusted performance.
While most performance measures rely on historical data, practical implementations use ex post results. Recognizing the predictive limitations of historical data, especially in certain situations, may necessitate additional or substitute measures. Sharpe ratio, by summarizing mean and variance with a single metric, serves as a valuable single tool in these assessments.
In conclusion, understanding how to pick relatively better-performing shares based on historical data involves leveraging the Sharpe ratio. While it provides valuable insights, investors must be aware of its limitations and consider its application to individual stocks cautiously. As financial markets evolve, the Sharpe ratio remains a relevant tool, but its use should be complemented by a broader understanding of predictive measures and market dynamics.
The statistics presented here are derived from a simple Excel-based analysis of monthly data spanning at least five years, sourced from reputable financial platforms such as www.investing.com and/or www.yahoofinance.com (Table 1). Interestingly, while daily prices are readily available on these websites, free of charge, accessing these data from the CSE (and similar exchanges worldwide, for example NZX) often requires a subscription fee. This disparity underscores the accessibility challenges faced by investors in obtaining comprehensive historical stock prices.
Notably, all figures provided have been rounded to the nearest whole number, with the exception of Beta values. In financial terms, Beta signifies the correlation between the return of a specific stock and the overall market return, gauged through price changes. For the sake of simplicity, our analysis focuses solely on capital gains or losses, omitting considerations for other returns such as dividends, rights, and bonus issues. This refined approach aims to offer a clear and streamlined perspective on the performance dynamics of the selected stocks.
(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for.)
Features
Acid test emerges for US-EU ties
European Commission President Ursula von der Leyen addressing the World Economic Forum in Davos, Switzerland on Tuesday put forward the EU’s viewpoint on current questions in international politics with a clarity, coherence and eloquence that was noteworthy. Essentially, she aimed to leave no one in doubt that a ‘new form of European independence’ had emerged and that European solidarity was at a peak.
These comments emerge against the backdrop of speculation in some international quarters that the Post-World War Two global political and economic order is unraveling. For example, if there was a general tacit presumption that US- Western European ties in particular were more or less rock-solid, that proposition apparently could no longer be taken for granted.
For instance, while US President Donald Trump is on record that he would bring Greenland under US administrative control even by using force against any opposition, if necessary, the EU Commission President was forthright that the EU stood for Greenland’s continued sovereignty and independence.
In fact at the time of writing, small military contingents from France, Germany, Sweden, Norway and the Netherlands are reportedly already in Greenland’s capital of Nook for what are described as limited reconnaissance operations. Such moves acquire added importance in view of a further comment by von der Leyen to the effect that the EU would be acting ‘in full solidarity with Greenland and Denmark’; the latter being the current governing entity of Greenland.
It is also of note that the EU Commission President went on to say that the ‘EU has an unwavering commitment to UK’s independence.’ The immediate backdrop to this observation was a UK decision to hand over administrative control over the strategically important Indian Ocean island of Diego Garcia to Mauritius in the face of opposition by the Trump administration. That is, European unity in the face of present controversial moves by the US with regard to Greenland and other matters of contention is an unshakable ‘given’.
It is probably the fact that some prominent EU members, who also hold membership of NATO, are firmly behind the EU in its current stand-offs with the US that is prompting the view that the Post-World War Two order is beginning to unravel. This is, however, a matter for the future. It will be in the interests of the contending quarters concerned and probably the world to ensure that the present tensions do not degenerate into an armed confrontation which would have implications for world peace.
However, it is quite some time since the Post-World War Two order began to face challenges. Observers need to take their minds back to the Balkan crisis and the subsequent US invasions of Afghanistan and Iraq in the immediate Post-Cold War years, for example, to trace the basic historic contours of how the challenges emerged. In the above developments the seeds of global ‘disorder’ were sown.
Such ‘disorder’ was further aggravated by the Russian invasion of Ukraine four years ago. Now it may seem that the world is reaping the proverbial whirlwind. It is relevant to also note that the EU Commission President was on record as pledging to extend material and financial support to Ukraine in its travails.
Currently, the international law and order situation is such that sections of the world cannot be faulted for seeing the Post World War Two international order as relentlessly unraveling, as it were. It will be in the interests of all concerned for negotiated solutions to be found to these global tangles. In fact von der Leyen has committed the EU to finding diplomatic solutions to the issues at hand, including the US-inspired tariff-related squabbles.
Given the apparent helplessness of the UN system, a pre-World War Two situation seems to be unfolding, with those states wielding the most armed might trying to mould international power relations in their favour. In the lead-up to the Second World War, the Hitlerian regime in Germany invaded unopposed one Eastern European country after another as the League of Nations stood idly by. World War Two was the result of the Allied Powers finally jerking themselves out of their complacency and taking on Germany and its allies in a full-blown world war.
However, unlike in the late thirties of the last century, the seeming number one aggressor, which is the US this time around, is not going unchallenged. The EU which has within its fold the foremost of Western democracies has done well to indicate to the US that its power games in Europe are not going unmonitored and unchecked. If the US’ designs to take control of Greenland and Denmark, for instance, are not defeated the world could very well be having on its hands, sooner rather than later, a pre-World War Two type situation.
Ironically, it is the ‘World’s Mightiest Democracy’ which is today allowing itself to be seen as the prime aggressor in the present round of global tensions. In the current confrontations, democratic opinion the world over is obliged to back the EU, since it has emerged as the principal opponent of the US, which is allowing itself to be seen as a fascist power.
Hopefully sane counsel would prevail among the chief antagonists in the present standoff growing, once again, out of uncontainable territorial ambitions. The EU is obliged to lead from the front in resolving the current crisis by diplomatic means since a region-wide armed conflict, for instance, could lead to unbearable ill-consequences for the world.
It does not follow that the UN has no role to play currently. Given the existing power realities within the UN Security Council, the UN cannot be faulted for coming to be seen as helpless in the face of the present tensions. However, it will need to continue with and build on its worldwide development activities since the global South in particular needs them very badly.
The UN needs to strive in the latter directions more than ever before since multi-billionaires are now in the seats of power in the principle state of the global North, the US. As the charity Oxfam has pointed out, such financially all-powerful persons and allied institutions are multiplying virtually incalculably. It follows from these realities that the poor of the world would suffer continuous neglect. The UN would need to redouble its efforts to help these needy sections before widespread poverty leads to hemispheric discontent.
Features
Brighten up your skin …
Hi! This week I’ve come up with tips to brighten up your skin.
* Turmeric and Yoghurt Face Pack:
You will need 01 teaspoon of turmeric powder and 02 tablespoons of fresh yoghurt.
Mix the turmeric and yoghurt into a smooth paste and apply evenly on clean skin. Leave it for 15–20 minutes and then rinse with lukewarm water
Benefits:
Reduces pigmentation, brightens dull skin and fights acne-causing bacteria.
* Lemon and Honey Glow Pack:
Mix 01teaspoon lemon juice and 01 tablespoon honey and apply it gently to the face. Leave for 10–15 minutes and then wash off with cool water.
Benefits:
Lightens dark spots, improves skin tone and deeply moisturises. By the way, use only 01–02 times a week and avoid sun exposure after use.
* Aloe Vera Gel Treatment:
All you need is fresh aloe vera gel which you can extract from an aloe leaf. Apply a thin layer, before bedtime, leave it overnight, and then wash face in the morning.
Benefits:
Repairs damaged skin, lightens pigmentation and adds natural glow.
* Rice Flour and Milk Scrub:
You will need 01 tablespoon rice flour and 02 tablespoons fresh milk.
Mix the rice flour and milk into a thick paste and then massage gently in circular motions. Leave for 10 minutes and then rinse with water.
Benefits:
Removes dead skin cells, improves complexion, and smoothens skin.
* Tomato Pulp Mask:
Apply the tomato pulp directly, leave for 15 minutes, and then rinse with cool water
Benefits:
Controls excess oil, reduces tan, and brightens skin naturally.
Features
Shooting for the stars …
That’s precisely what 25-year-old Hansana Balasuriya has in mind – shooting for the stars – when she was selected to represent Sri Lanka on the international stage at Miss Intercontinental 2025, in Sahl Hasheesh, Egypt.
The grand finale is next Thursday, 29th January, and Hansana is all geared up to make her presence felt in a big way.
Her journey is a testament to her fearless spirit and multifaceted talents … yes, her life is a whirlwind of passion, purpose, and pageantry.
Raised in a family of water babies (Director of The Deep End and Glory Swim Shop), Hansana’s love affair with swimming began in childhood and then she branched out to master the “art of 8 limbs” as a Muay Thai fighter, nailed Karate and Kickboxing (3-time black belt holder), and even threw herself into athletics (literally!), especially throwing events, and netball, as well.
A proud Bishop’s College alumna, Hansana’s leadership skills also shone bright as Senior Choir Leader.
She earned a BA (Hons) in Business Administration from Esoft Metropolitan University, and then the world became her playground.
Before long, modelling and pageantry also came into her scene.
She says she took to part-time modelling, as a hobby, and that led to pageants, grabbing 2nd Runner-up titles at Miss Nature Queen and Miss World Sri Lanka 2025.
When she’s not ruling the stage, or pool, Hansana’s belting tunes with Soul Sounds, Sri Lanka’s largest female ensemble.
What’s more, her artistry extends to drawing, and she loves hitting the open road for long drives, she says.
This water warrior is also on a mission – as Founder of Wave of Safety,
Hansana happens to be the youngest Executive Committee Member of the Sri Lanka Aquatic Sports Union (SLASU) and, as founder of Wave of Safety, she’s spreading water safety awareness and saving lives.
Today is Hansana’s ninth day in Egypt and the itinerary for today, says National Director for Sri Lanka, Brian Kerkoven, is ‘Jeep Safari and Sunset at the Desert.’
And … the all-important day at Miss Intercontinental 2025 is next Thursday, 29th January.
Well, good luck to Hansana.
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