Sharpe Ratio

The Sharpe Ratio is a financial metric that measures the risk-adjusted return of an investment. It calculates the excess return (above a risk-free investment like a government security) per unit of volatility (risk). A higher Sharpe Ratio indicates a better risk-adjusted performance, meaning the investment generates more returns for the level of risk taken. Investors can use the Sharpe Ratio to compare the performance of different investments with varying levels of risk.