Sharpe ratio is a number that can help you understand the risk vs return ratio. If something is more risky it should have a return that matches the risk associated, using this number you can ensure that is the case or not.
If the ratio is less than 1, it is generally considered bad. From 1 to 1.99 it can be alright, from 2 to 2.99 it is considered very good, and if it is 3 or higher it is considered amazing. The higher the Sharpe ratio the better the return can be in relation to the risk taken.
The higher the Sharpe ratio the better the investment can be for you. If the ratio is lower it can mean the risk associated with the investment may outweigh the potential return.
Yes, Sharpe ratio can be less than zero in the negatives, this is a very poor investment and should be avoided if possible.
Create Date: September 16, 2024
Last Modified Date: September 16, 2024
