We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies. You can view our cookie policy and edit your settings here, or by following the link at the bottom of any page on our site.
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.
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.