What Is The Sharpe Ratio?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

The Share Ratio is a measure of risk-adjusted performance devised by William Sharpe. It is used to assess whether the returns on a portfolio are a result of good investments or from getting lucky with large amounts of risk.

An investment with a higher return for less risk will have a higher Sharpe Ratio than one with high levels of risk. Ideally an investor wants to have a portfolio with a high Sharpe Ratio.

The calculation for the Sharpe Ratio is:

  • ( Expected Portfolio Return - Risk Free Rate ) / Portfolio Standard Deviation

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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.