The Sharpe ratio is a measure of risk-adjusted performance of an investment asset, or a trading strategy. It is defined as:

,

where < R > is the expected value of asset return, R_f is an expected return of another "standard" asset, such as the risk free rate of return, and σ is the standard deviation of the asset returns.

The ratio was developed by William Forsyth Sharpe.

See also

• Modern portfolio theory
• Sortino ratio
• Upside potential ratio

External link

• The Sharpe ratio