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Sharpe Ratio

Sharpe Ratio

Definition

A measurement often used to synthesize risk into an easy-to-understand metric. Sharpe ratio is a risk-adjusted measure calculated using standard deviation and excess return (the return of an investment in excess of a risk-free return, such as the 90-day Treasury bill) to determine reward per unit of risk. The higher the Sharpe ratio, the better the historical risk-adjusted performance is.

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