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Sharpe Ratio


The Sharpe ratio is a risk-adjusted financial measure developed by Nobel Laureate William Sharpe. It uses a fund's standard deviation and excess return to determine the reward per unit of risk. The higher a fund's Sharpe ratio, the better the fund's "risk-adjusted" performance, given by

 S=((r-r_(rf)))/sigma

where r is the return on the portfolio, r_(rf) is the risk-free return and sigma is the standard deviation of the fund's returns (i.e., the portfolio risk).


See also

Alpha, Beta

Portions of this entry contributed by Mark McIlroy

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References

Sharpe, W. F. "The Sharpe Ratio." J. Portfolio Management 21, 49-58, 1994. http://www.stanford.edu/~wfsharpe/art/sr/sr.htm.

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Sharpe Ratio

Cite this as:

McIlroy, Mark and Weisstein, Eric W. "Sharpe Ratio." From MathWorld--A Wolfram Web Resource. https://mathworld.wolfram.com/SharpeRatio.html

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