To improve Sharpe Ratio you'll need to first increase your depth in understanding it. Sharpe ratio is comprised of two main components:

(1) **Volatility:** Sharpe Ratio tries to even out the fact that if you’re taking a lot of risk in your portfolio, you would have to a large enough return to justify that risk.

(2) **Average Return:** On EquitySim we take the daily change between each day, and take the average of those returns.

## Sharpe Ratio - Where to Start?

#### Volatility is easier to predict than future returns.

On EquitySim, volatility considers a security's daily return for the last 90 trading days. The average return is the average of those inputs. A securities volatility usually stays consistent over fixed time frames.

Unlike Volatility, historical returns are NOT a good indicator of the future returns of an investment. This is where your skill comes into play, the job of an active manager to choose which investments will outperform.

## Start by managing your volatility.

**1) Set a daily volatility goal you'd like your portfolio to achieve**

**2) Find investments that help you achieve these goals**

The volatility filter can be used here (sometimes found under advanced filters):

Volatility is categorized by 3-month volatilities.

**3) Leverage Limit orders to cap the volatility of your holdings: **

**4) Launch your "targetted volatility" strategy and let it run on the simulation **

**5) Export and analyze your Sharpe ratio data**

Once you have volatility figured out you can then start examining your return patterns and how both volatility and return work together in Sharpe Ratio.