
Sharp Ratio
The Sharpe Ratio is a measure used to evaluate how well an investment compensates for its risk. It compares the excess return of the investment (its return above a risk-free rate) to the amount of risk taken, represented by volatility. A higher Sharpe Ratio indicates better risk-adjusted performance, meaning the investment provides more return for each unit of risk. It's useful for comparing different investments or portfolios to determine which offers a more efficient balance between risk and reward.