Sharpe Ratio
A number measuring the reward-to-risk efficiency of an investment,
used to create risk-efficient portfolios.
The definition of the Sharpe Ratio is:
- S(x) = (rx - Rf) / StdDev(x)
where
- x is some investment
- rx is the average annual rate of return of x
- Rf is the best available rate of return of a "riskless" security (ie cash)
- StdDev(x) is the standard deviation of rx
See the main article on the Sharpe Ratio for more information.
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