MediumPortfolio & Risk

Diversification & Sharpe

AQR CapitalCitadel

Two uncorrelated strategies each have a Sharpe ratio of 1 and the same volatility. If you allocate equally to both, what is the combined Sharpe ratio? (Round to 2 decimals.)

Approach

Returns add, variances add (uncorrelated).

Sharpe improves by √(number of independent bets).