Sharpe Ratio Definition - Glossary

Sharpe Ratio is a measure of risk-adjusted returns for an investment, comparing excess returns to its volatility.

Sharpe Ratio is a financial metric used to evaluate the risk-adjusted performance of an investment. It measures the excess return (or risk premium) per unit of risk taken. Calculated by subtracting the risk-free rate from the investment's return and dividing by its standard deviation. A higher Sharpe Ratio indicates a more attractive risk-adjusted return. It helps investors understand if higher returns are due to smart investment decisions or excessive risk. Useful for comparing different investments or portfolios on a similar risk basis.