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

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