Sharpe Ratio
The Sharpe ratio measures an investment’s return relative to its risk, calculating how much excess return is generated per unit of volatility. It is commonly used by investors to compare the performance of different portfolios or funds. A higher Sharpe ratio indicates better risk-adjusted returns, making it a valuable tool for assessing whether an investment is delivering sufficient returns for its level of risk.
Key Takeaways
- Measures risk-adjusted returns relative to volatility.
- Used to compare the performance of portfolios or funds.
- Higher ratios indicate better risk-adjusted performance.
- Essential for assessing investment efficiency.
