Risk

Sharpe Ratio

Excess return per unit of risk — return above risk-free rate divided by volatility.

In depth

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.

Frequently asked about Sharpe Ratio

What is Sharpe Ratio?

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.

Why does Sharpe Ratio matter for investors?

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.

How is Sharpe Ratio used in practice?

Higher is better. Sharpe ratios above 1.0 are considered good, above 2.0 very good.

Recent news mentioning Sharpe Ratio

BYD Profit Sees Sharpest Drop Since 2020 Amid Intense Home Market Rivalry

The Quick Take * BYD profit decline is the steepest since 2020, driven by intensifying domestic competition in China's EV market * No specific market price reaction cited in the single available source; stock movement data not reported * No analyst or institutional commentary provided in the available source material * International business flagged as the primary growth hope as domestic margins face sustained pressure * Pressure on BYD signals broader EV price-war dynamics affecting globa

Apr 30, 2026

Related terms

Volatility

The degree of variation in an asset's price over time.

Alpha

Return earned in excess of a benchmark, after adjusting for risk.

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