Sharpe ratio
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, Rf 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
Categories: Financial mathematics