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The Sharpe ratio measures risk-adjusted return by comparing excess return to volatility. Higher ratios indicate better returns per unit of risk, useful for comparing investments.

Формула

Sharpe ratio = (Portfolio return - Risk-free rate) / Standard deviation

Водич корак по корак

1Calculate average portfolio return
2Subtract risk-free rate (treasury yield)
3Divide by portfolio standard deviation (volatility)

Worked Examples

Инпут

Return: 10%, Risk-free: 2%, Volatility: 15%

Резултат

Sharpe ≈ 0.53

(0.10 - 0.02) / 0.15

Common Mistakes to Avoid

✕Ignoring risk-free rate
✕Using realized volatility instead of forward estimates

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