# 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

What is the Sharpe Ratio?

The Sharpe ratio is a way to measure a fund’s risk-adjusted returns. It is calculated for the trailing three-year period by dividing a fund's annualized excess returns over the risk-free rate by its annualized standard deviation. The higher the Sharpe ratio, the better the fund's historical risk-adjusted performance has been.

Because the Sharpe ratio uses standard deviation as its risk measure, it is more appropriately used to analyze a single fund rather than a portfolio. You can use Sharpe ratios to directly compare two similar funds to see which delivered more reward per unit of risk taken, or to see how a fund’s risk-adjusted return compares with the average fund in the category or its benchmark.

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