Excess return per unit of risk — return above risk-free rate divided by volatility.
Higher is better. Sharpe ratios above 1.0 are considered good, above 2.0 very good. Used to compare risk-adjusted returns across strategies. Limitation: assumes returns are normally distributed and treats upside and downside volatility equally.
Excess return per unit of risk — return above risk-free rate divided by volatility. Higher is better. Sharpe ratios above 1.0 are considered good, above 2.0 very good. Used to compare risk-adjusted returns across strategies. Limitation: assumes returns are normally distributed and treats upside and downside volatility equally.
In risk, Sharpe Ratio is one of the building blocks investors use to compare opportunities and assess risk. Understanding it helps you read research notes, earnings reports, and market commentary without getting lost in jargon.
Higher is better. Sharpe ratios above 1.0 are considered good, above 2.0 very good.
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