Sharpe ratio

A risk-adjusted return measure based on excess return and return variability.

The Sharpe ratio compares a strategy’s excess return with the variability of its returns. A higher value indicates more return per unit of measured volatility under the calculation’s assumptions.

The value depends on sampling frequency, annualisation, the risk-free rate and the return series used. Compare Sharpe ratios only when those choices are consistent, and combine the measure with drawdown, trade count and other risk evidence.