How do I calculate the sharpe ratio of a portfolio of stocks?

External question — Quantitative Finance Stack Exchange Author: cjm2671 Original post: https://quant.stackexchange.com/questions/66701 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. If I have daily prices for $N$ stocks, how do I calculate the Sharpe ratio for an equal volatility weight portfolio? On each day, I have calculated log returns as: $$ r_{t}^{s} = \ln{price_{t}\over{price_{t-1}}} $$ I have then measured the standard deviation of each this series in a 60-day window, and normalised this so each series has approximate deviation of 1. Question 1: Is the portfolio daily return equal to the arithmetic mean of the individual stocks $s$ , assuming I will allocate on a equal volatility basis before trading: $$ \text{Portfolio Log Return}_t = \frac{1}{N} \sum_s r_t^s $$ Question 2: If I take the portfolio return from above, and use these figures to create a Sharpe ratio $$ \text{Sharpe ratio} = \frac{\sqrt(252)*\text{Arithmetic Average of LogReturns}}{\text{Std Deviation of LogReturns}} $$ Does this make any sense? What's the relationship of a Sharpe ratio calculated in this way to the Sharpe ratios published in journals and fund brochures? Can a Sharpe calculated in this way be converted back to 'realized returns'? I have calculated this value for a period 1993-1997 for the 500 most traded stocks, weighted an equal volatility basis, and got a value of approximately 7, which is definitely not right.