As U.S housing prices come down to more sustainable levels after a prolonged boom, one can only wonder if we can expect the same story to be played out in other economies. Maybe there is some alpha waiting to be picked up. One place that stands out from a sustainability perspective is India, where real estate, whether residential or commercial, seems to have completely disconnected from local economic fundamentals.

Imagine the dusty suburbs of Bangalore, Delhi and Mumbai. Imagine neighborhoods with high rises that have no reliable power or water supply, battered roads if at all, no public transport and a shadow of crime such that locked houses aren’t safe even for a day. Now imagine these houses commanding prices that match prices in expensive New Jersey suburbs. Go figure. Or have a look here. Or if you have time, here. Perhaps there are positive returns to be had in a bet on these. But as John Paulson was quoted in the WSJ , “you can’t short houses”. But maybe we can short some of the companies that build and sell these houses.

With the interest in hedge funds and other alternative investment mechanisms soaring, here is an attempt to provide an intuitive explanation for understanding and interpreting the Sharpe Ratio and the Information Ratio. They are both indicators of risk adjusted returns, and are ratios of mean returns to standard deviations of some flavor, but different from each other.