# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Sharpe Ratio

This risk-adjusted measure was developed by Nobel Laureate William Sharpe. It is calculated by using standard deviation and excess return to determine reward per unit of risk.

The higher the Sharpe ratio, the better the fund's historical risk-adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund's annualized excess returns over the risk-free rate by its annualized standard deviation.

It is recalculated on a monthly basis. Since this ratio uses standard deviation as its risk measure, it is most appropriately applied when analyzing a fund that is an investor's sole holding. The Sharpe ratio can be used to compare directly how much risk two funds each had to bear to earn excess return over the risk-free rate.

For example, a mid-cap growth fund may have a Sharpe ratio of 0.40. Meanwhile, the average Sharpe ratio for all mid-cap growth funds is 0.29. This means that this individual fund currently has had better risk-adjusted performance than the average mid-cap growth fund.

Sponsors Center
Sponsored Links