Sharpe ratio –

The measurement of an investment’s excess return per each unit of additional risk (as measured by standard deviation), compared to a risk-free asset. Sharpe Ratio indicates whether portfolio returns are due to smart investing or excess risk. In other words, the higher the Sharpe Ratio, the better the risk-adjusted return, calculated as:

S = (return of the portfolio ”“ the return of the risk-free asset) / standard deviation of the portfolio