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


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

Explore with Wolfram|Alpha


Sharpe, W. F. "The Sharpe Ratio." J. Portfolio Management 21, 49-58, 1994.

Referenced on Wolfram|Alpha

Sharpe Ratio

Cite this as:

McIlroy, Mark and Weisstein, Eric W. "Sharpe Ratio." From MathWorld--A Wolfram Web Resource.

Subject classifications