Sharpe Ratio: Comparing investments fairly
The Sharpe ratio measures how much return you get for each unit of risk assumed.
An investment giving 10% return with low volatility is better than one giving 10% with high volatility.
A Sharpe ratio above 1 is respectable; above 2 is excellent.
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Frequently asked questions
Is the Sharpe ratio enough to choose an investment?
No, it's one indicator.
What's a good Sharpe ratio?
It depends on context. In stocks, >1 is good.