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Investment
Sharpe Ratio
A measure of how much return you get for each unit of risk you take — higher is better.
The Sharpe ratio subtracts the risk-free rate from your return and divides by standard deviation. It is the most widely used risk-adjusted performance metric in the world. It helps compare different strategies fairly.
It's the miles-per-gallon rating for your trading strategy — how efficiently are you turning risk into profit?
Real world: A strategy with 15% annual return and low volatility might have a Sharpe ratio of 1.5. Another with the same return but wild swings might have only 0.6. Professional funds aim for Sharpe ratios above 1.0.
💡 A high Sharpe ratio means you are making good money without taking crazy risks.