Sharpe Ratio
A reward-for-risk measure showing how much excess return you earned per unit of total volatility.
Category: Risk Measures
What is Sharpe Ratio?
Defined as (return minus risk-free rate) over volatility. Higher is better. A Sharpe above 1 is generally considered good, above 2 very good. The original metric was introduced by William Sharpe in 1966.
Formula
Sharpe = \frac{R_p - R_f}{\sigma_p}