The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results.

Sharpe ratio definition

The Sharpe ratio allows investors to calculate what returns are on offer for holding a higher-risk asset.

Sharpe ratio definition

The Sharpe ratio allows investors to calculate what returns are on offer for holding a higher-risk asset.

Specifically, it represents the excess return from the extra volatility of the riskier asset. Investors can use the Sharpe ratio to see if taking on a riskier asset is worthwhile, compared to holding a lower-risk or risk-free asset. The ratio was developed by William Sharpe in 1966, who was revered for his work on the capital asset pricing model.

A - B - C - D - E - F - G - H - I - J - K - L - M - N - O - P - Q - R - S - T - U - V - W - Y

See all glossary trading terms