How to use Sharpe Ratio for evaluating sports betting systems

Sports Picks System
Oct 9, 2016 · 2 min read

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