Sharpe Ratio

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Dictionary Says

Definition of 'Sharpe Ratio'

A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is:

Sharpe Ratio
Investopedia Says

Investopedia explains 'Sharpe Ratio'

The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.

A variation of the Sharpe ratio is the Sortino ratio, which removes the effects of upward price movements on standard deviation to measure only return against downward price volatility.
Search results for

'Sharpe Ratio'

  • How The Sharpe Ratio Can Oversimplify Risk

    http://www.investopedia.com/articles/07/SharpeRatio.asp
    How The Sharpe Ratio Can Oversimplify Risk. ... The Sharpe ratio has been around
    since 1966, but its life has not passed without controversy. ...

  • Understanding The Sharpe Ratio

    http://www.investopedia.com/articles/07/sharpe_ratio.asp
    Understanding The Sharpe Ratio. July 28 ... perspective. How the returns are
    distributed is the Achilles heel of the Sharpe ratio. Bell ...

  • Find The Highest Returns With The Sharpe Ratio

    http://www.investopedia.com/articles/07/sharpe_mpt.asp
    Find The Highest Returns With The Sharpe Ratio. ... The Sharpe ratio is designed
    to measure a unit of reward for each unit of risk taken. ...

  • 5 Ways To Rate Your Portfolio Manager

    http://www.investopedia.com/articles/stocks/11/5-ways-to-measure-money-managers.asp
    ... Sharpe Ratio. The Sharpe ratio, also known as the reward-to-variability ratio,
    is perhaps the most common portfolio management metric. ...

  • Does Your Investment Manager Measure Up?

    http://www.investopedia.com/articles/pf/07/investment_manager_stats.asp
    ... managers. Strange, unfamiliar terms drift through the air: Sharpe ratio,
    alpha, r-squared, down-market capture ratio ... You hear ...

  • Measure Your Portfolio's Performance

    http://www.investopedia.com/articles/08/performance-measure.asp
    ... Sharpe Ratio The Sharpe ratio is almost identical to the Treynor measure, except
    that the risk measure is the standard deviation of the portfolio instead of ...

  • 5 Ways To Measure Mutual Fund Risk

    http://www.investopedia.com/articles/mutualfund/112002.asp
    ... They are alpha, beta, r-squared, standard deviation and the Sharpe ratio. ... The greater
    an investment's Sharpe ratio, the better its risk-adjusted performance. ...

  • Series 66 Study Guide - Portfolio Risks - Measuring Portfolio ...

    http://www.investopedia.com/exam-guide/series-66/portfolio-risks/measuring-portfolio-risks.asp
    This section discusses different risk measures: Beta, Alpha and the Sharpe Ratio. ...
    Sharpe Ratio = (total return - risk free rate of return) s. Look Out! ...

  • Quantitative Analysis Of Hedge Funds

    http://www.investopedia.com/articles/mutualfund/09/hedge-fundanalysis.asp
    ... Source: "Contingency Analysis" (2002). Sharpe Ratio - One of the most popular measures
    of risk-adjusted returns used by hedge funds is the Sharpe ratio. ...

  • Series 65 Study Guide - Portfolio Risks and Returns - Stock Risks ...

    http://www.investopedia.com/exam-guide/series-65/portfolio-risks-returns/stock-risks.asp
    ... Look Out! Of course, the reverse of "the larger the Sharpe ratio, the greater the
    return," is that the lower the ratio, the lower the potential return. ...

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