Risk & performance

Sharpe ratio

Also known as: Sharpe

The Sharpe ratio measures risk-adjusted return: average excess return divided by the standard deviation of returns.

It tells you how much return a strategy earns per unit of volatility. A higher Sharpe means smoother, more efficient returns. Because it penalises volatility (both up and down), some traders prefer the Sortino ratio, which only penalises downside. Algovex reports both.

Related terms

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