Sharpe ratio

Sharpe ratio
A measure of a portfolio's excess return relative to the total variability of the portfolio. Related: treynor index
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A ratio of reward to variability developed by William F. Sharpe to measure the performance of mutual funds without regard to their correlation to other assets in an investor's portfolio. It is generally calculated as Rate of Return minus Risk-free Rate of Return divided by Standard Deviation for the period. The CENTER ONLINE Futures Glossary
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A measure of a portfolio's excess return ( excess returns) relative to the total variability of the portfolio. Related: Treynor index . Named after William Sharpe, Nobel Laureate, and developer of the capital asset pricing model. Bloomberg Financial Dictionary

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   A way of deciding whether returns are produced by intelligent investment decisions or by accepting excess risk. It measures the return of an investment compared with investment in government bonds, which are regarded as virtually risk free because the government in theory always repays its debts. The Sharpe Ratio is calculated by subtracting the rate of return on government securities from the rate of return on a portfolio, and then dividing the difference by the standard deviation of the portfolio's returns.

Financial and business terms. 2012.

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