Finance glossary
Sharpe Ratio
Definition
A measure of risk-adjusted return per unit of risk taken.
The Sharpe Ratio equals portfolio return minus the risk-free rate, divided by the standard deviation of return. A higher ratio means better risk-adjusted performance. A Sharpe above 1 is good, above 2 is great, above 3 is exceptional. It allows comparison of portfolios with different risk levels.
In a sentence
Her fund's Sharpe ratio of 2 showed it delivered strong returns without taking on excessive risk.
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