Risk
Sharpe Ratio
The Sharpe ratio measures how much excess return you earned per unit of volatility.
Return alone flatters a wild strategy that happened to win. The Sharpe ratio subtracts a risk-free rate and divides by the volatility of the path. A higher Sharpe means you were paid more for each unit of swing. It is the standard way to compare a stock, a fund, and a portfolio when the question is efficiency rather than raw profit.
Sharpe assumes volatility is the risk you care about, and it treats upside and downside swings as equally bad. A strategy with rare crashes can look smooth and high-Sharpe until the crash. Use it to compare similar products, such as two index ETFs or two diversified portfolios, over the same period. A single stock's Sharpe over a short window is mostly noise.
Formula
Sharpe = (average return − risk-free return) ÷ standard deviation of return
Live example
Apple Inc. (AAPL) last printed at $345.65 with a market cap of $5.04T. Beta on the row is 1.07. The latest session move is unavailable.
Related
Volatility · Beta · Expense Ratio
See it on a list: best stocks · screener
Questions
What is a good Sharpe?
Above 1 over a long period is strong for a diversified portfolio. Comparing a three-month Sharpe across stocks will mislead you.
How is Sortino different?
Sortino divides by downside deviation only, so upside volatility is not punished. It answers a slightly kinder question.