The Sharpe Ratio is one of the most widely used metrics for evaluating the risk-adjusted return of an investment, strategy, or portfolio. It was developed by Nobel Prize winner William F. Sharpe and is calculated as the difference between the achieved return and the risk-free rate, divided by the standard deviation of returns. A higher Sharpe Ratio indicates that more return is generated per unit of risk taken. A value of 1.0 or higher is generally considered acceptable, while values above 2.0 are considered very good. The metric allows comparison of different strategies on a standardized basis and is widely used in wealth management, fund selection, and strategy evaluation. However, it has limitations, as it assumes symmetric return distributions and does not fully capture extreme loss events.
