Sharpe Ratio

What is it? A measure of performance that takes risk into account. Developed by William F. Sharpe, this ratio divides an investments excess return (above the guaranteed return of the 90-day Treasury bill rate) by its standard deviation, which is an indicator of volatility. The result is a raw number, and the higher the better because it means that an investment had a high return relative to its risk. The ratio gives investors an idea whether an investment is worth the risk and allows investors to compare the risk-adjusted performance of a variety of investments, even ones as different as stock and bond funds.

Added By: Makayla

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