Same portfolio. Three risk levels.
One Sharpe ratio.
Take the highest Sharpe mix of stocks. Hold more or less of it against cash. The reward per unit of risk never moves.
| Investor |
In the mix |
Return |
Vol |
Sharpe |
| Conservative | 40 pct | 9.10 | 7.20 | 0.36 |
| Balanced | 65 pct | 10.73 | 11.70 | 0.36 |
| Aggressive | 90 pct | 12.35 | 16.20 | 0.36 |
| Picks safe stocks instead | different mix | 8.30 | 7.20 | 0.25 |
Same stock mix at 40, 65 or 90 pct: the Sharpe holds at 0.36. The cash dial sets your drawdown, not your efficiency. But swap into a hand-picked defensive basket at the same 7.2 pct vol and you earn 8.3 not 9.1 pct. On Rs 10L over 20 years that 0.8 point leak is Rs 7.8L handed away for the comfort of owning different names.