Sharpe Ratio
Risk-adjusted return: excess return divided by volatility.
The Sharpe ratio measures how much excess return (above the risk-free rate) an investment provides per unit of risk (standard deviation). Higher Sharpe ratios indicate better risk-adjusted performance. It's commonly used to compare portfolios or strategies.
Formula
Related Terms
Efficient Frontier
The set of portfolios offering the highest return for each level of risk.
Portfolio Volatility
Standard deviation of portfolio returns — total risk including diversification effects.
Maximum Sharpe Portfolio
The portfolio with the highest risk-adjusted return.
Monte Carlo Simulation
Generating thousands of possible future scenarios through random sampling.