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Mutual funds
Also called: Sharpe
The Sharpe ratio is an investment's return above a risk-free rate, divided by the volatility (standard deviation) of its returns. It measures return earned per unit of ups and downs; a higher number means more return for the same bumpiness.
Sharpe = (Annual return − Risk-free rate) ÷ Annualised standard deviation of returns
A fund returned 14% a year with a standard deviation of 14%, and the 91-day T-bill yielded 7%. Its Sharpe ratio is (14 − 7) ÷ 14 = 0.5.
The Sharpe ratio is an investment's return above a risk-free rate, divided by the volatility (standard deviation) of its returns. It measures return earned per unit of ups and downs; a higher number means more return for the same bumpiness.
Sharpe = (Annual return − Risk-free rate) ÷ Annualised standard deviation of returns. A fund returned 14% a year with a standard deviation of 14%, and the 91-day T-bill yielded 7%. Its Sharpe ratio is (14 − 7) ÷ 14 = 0.5.
No. Sharpe ratio describes a fund's costs, structure or past record. Mutual fund investments are subject to market risks, and past performance does not indicate future returns.