Sharpe Ratio

The Sharpe Ratio is the ratio between the risk and the performance of the fund, where risk is expressed in terms of volatility. It is defined, for a portfolio, as the outperformance obtained compared to a risk-free investment, divided by the portfolio's volatility.

It is an indicator that measures the additional return obtained per unit of risk. When it is positive, the higher the Sharpe Ratio, the more the risk-taking is rewarded. A negative Sharpe Ratio means that the portfolio has performed worse than a risk-free investment.