Economics Risk And Return Questions
The Sharpe ratio is a measure used to evaluate the risk-adjusted return of an investment or portfolio. It is calculated by subtracting the risk-free rate of return from the investment's or portfolio's average return, and then dividing the result by the standard deviation of the investment's or portfolio's returns. The Sharpe ratio helps investors assess whether the returns generated by an investment are worth the level of risk taken. A higher Sharpe ratio indicates a better risk-adjusted return.