Sharpe Ratio

The Sharpe Ratio is a measure of risk-adjusted returns.

It is calculated by dividing the portfolio return minus the risk free rate(usually the 10 year T-note’s yield) by the portfolio return’s standard deviation.

The Sharpe Ratio can reflect returns more accurately in terms of risk undertaken. Some funds may generate excess returns but only via undertaking excessive risk. The Sharpe Ratio would account for that in its calculation.