How to use Sharpe Ratio for evaluating sports betting systems

Sharpe Ratio from Wikipedia

The Sharpe ratio characterizes how well the return of an asset compensates the investor for the risk taken. When comparing two assets versus a common benchmark, the one with a higher Sharpe ratio provides better return for the same risk.

The Green All Over blog shared a NFL profitable system. A profit of $4,200 on 680 picks for a 6.16% ROI the last 10 seasons with only one losing season. Pretty impressive even though the losing season is huge $1,527. Note: I use 1.91 (-110) for odds.

The system is to play small road underdogs with a spread from 2.5 to 5.5. So I wanted to check if using other spreads, I could improve the system. The result for the system for the following line:

[2.5;3]: 280 plays Return: $3,140 ROI: 11.18%

[2.5;3.5]: 420 plays Return: $4,230 ROI: 10.01%

[2.5;4]: 490 plays Return: $4,160 ROI: 8.36%

[2.5;4.5]: 550 plays Return: $3,880 ROI: 6.93%

[2.5;5]: 610 plays Return: $3,790 ROI: 6.14%

[2.5;5.5]:680 plays Return: $4,200 ROI: 6.16%

As you can see depending on the line, the return and the ROI are not the same, so which line do you choose.

I calculated the Sharpe Ratio for each system:

[2.5;3]: 0.606

[2.5;3.5]: 0.768

[2.5;4]: 0.676

[2.5;4.5]: 0.519

[2.5;5]: 0.481

[2.5;5.5]: 0.538

It means that using small road underdogs with a spread from 2.5 to 3.5 is the safest system to play. This system has 3 losing seasons, and the worst one was by $554.5 compared to the original system with only 1 losing season of $1,527.

Since the NFL season already started, I won’t play that system for the 2016 season, but I’ll consider adding it to my portfolio.

Sports Picks System is available on Android