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Sharpe ratio

The Sharpe ratio is a measure of risk-adjusted performance of an investment asset, or a trading strategy. It is defined as:

<math>S = {{ - R_f}\over \sigma}<math>,

where <math><math> is the expected value of asset return, <math>R_f<math> is an expected return of another "standard" asset, such as the risk free rate of return, and <math>\sigma<math> is the standard deviation of the asset returns.

The ratio was developed by William Forsyth Sharpe.

See also

• Modern portfolio theory
• Sortino ratio
• Upside potential ratio