What is the definition of a Sharpe Ratio?
- Posted on November 21, 2019
- Financial Terms
- By admin admin
The Share Ratio is a way to calculate the risk-adjusted-performance. William Sharpe was the person that came up with that term and it's now widely used in finance.
It is another way to assess whether the returns on a portfolio are a result of good investments or from speculating with large amounts of risk.
This means that an investment with a higher return for less risk will have a higher Sharpe Ratio than one with high levels of risk. Ideally an investor wants to have a portfolio with a high Sharpe Ratio.
This is how to calculate the Sharpe Ratio
- ( Expected Portfolio Return - Risk-Free Rate ) / Portfolio Standard Deviation
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