Definitions for "Sharpe Ratio"
A ratio of return to volatility; useful in comparing two portfolios in terms of risk-adjusted return. This ratio was developed by Nobel Laureate William Sharpe. The higher the Sharpe Ratio, the better - a high Sharpe ratio implies the portfolio or stock is realizing sufficient returns for each unit of risk. The Sharpe Ratio or the Risk-Adjusted Return allows investors to compare different assets or different portfolios. It is calculated by first subtracting the risk free rate from the return of the portfolio, then dividing by the standard deviation of the portfolio.
This is a risk-adjusted measure which is calculated using standard deviation and excess return to determine reward per unit of risk.
Named after investment professional William Sharpe, a measure of how much extra return an investment portfolio provides over a riskless standard, typically Treasury bills, for the risk it takes. The higher the ratio, the better the risk/return tradeoff.