Having worked in finance I am a public fan of the Sharpe ratio. I have written about this here and here.

One thing I have often forgotten (driving some bad analyses) is: the Sharpe ratio isn’t appropriate for models of repeated events that already have linked mean and variance (such as Poisson or Binomial models) or situations where the variance is very small (with respect to the mean or expectation). These are common situations in a number of large scale online advertising problems (such as modeling the response rate to online advertisements or email campaigns).

Photo “eggs in a basket” copyright MicoAssist appropriate CC license

In this note we will quickly explain the problem. Continue reading One place not to use the Sharpe ratio