Dipartimento di Scienze Statistiche

The Sharpe ratio is used to measure risk-adjusted returns for traded securities and it is quite useful to analyze long-term investments. It is one of the measures used by fund man-agers in the assessment of investment performance. In this guise, we assume it could be a key indicator to group securities that show similar dynamics of the Sharpe ratio over time. We use a hierarchical clustering analysis to identify groups of securities from the S&P500, which show similar dynamics of the Sharpe ratio during the last decade. Using a Dynamic Time Warping method, we identify two different clusters. To investigate how different Sharpe ratio dynam-ics may impact on portfolios’ diversification, we use the Most Diversified Portfolio approach (Choueifaty and Coignard, 2008) to evaluate the gain in terms of diversification and provide some insights.