Investment professionals generally judge a portfolio’s risk by its Sharpe ratio, which measures returns in relation to volatility; the higher one’s Sharpe, the better. For most of the 1990s, Medallion had a strong Sharpe ratio of about 2.0, double the level of the S&P 500. But adding foreign-market algorithms and improving Medallion’s trading techniques sent its Sharpe soaring to about 6.0 in early 2003, about twice the ratio of the largest quant firms and a figure suggesting there was nearly no risk of the fund losing money over a whole year.
