sharpe ratio

How to Calculate the Sharpe Ratio?

The formula for calculating the Sharpe Ratio is:
\[ \text{Sharpe Ratio} = \frac{\text{Portfolio Return} - \text{Risk-Free Rate}}{\text{Standard Deviation of Portfolio's Excess Return}} \]
For example, if a portfolio has a return of 10%, a risk-free rate of 2%, and a standard deviation of 8%, the Sharpe Ratio would be:
\[ \text{Sharpe Ratio} = \frac{10\% - 2\%}{8\%} = 1 \]

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