Sharpe Ratio

The Sharpe ratio is a measure used to evaluate the performance of an investment compared to a risk-free asset, like government bonds. It indicates how much excess return you earn for each unit of risk taken. A higher Sharpe ratio suggests that the investment is providing a better return for the risk involved. Essentially, it helps investors understand whether the returns of an investment justify the risks they are assuming, making it a useful tool in portfolio management and investment decision-making.