Sharpe Ratio is an indicator used to measure investment performance by assessing risk-adjusted returns. Developed by William F. Sharpe in 1966, this ratio helps investors compare portfolios based on the return earned against the level of risk taken.

Sharpe Ratio Formula :

R : Portfolio return (yield)

R_f : Risk-free rate or risk-free rate of return

? : Volatility or standard deviation of portfolio return.

Here we inform you why the Sharpe Ratio is important :

• Assessing Portfolio Performance: The Sharpe Ratio helps measure the effectiveness of an investment strategy based on risk and return.
• Portfolio Comparison: You can compare several portfolios with different risks.
• Risk Optimization: Helps investors find a balance between high returns and minimal risk.

In other words, the higher the Sharpe Ratio value, the better the portfolio's performance in generating returns commensurate with the risk taken.