CFA Level 1 – Quantitative Methods, Sharpe Ratio
The Sharpe Ratio is a simple measure of the excess return per unit of risk. The excess return is the return of the investment over and above the Risk Free Rate (RFR), and a unit of risk is defined as the standard deviation.
Sharpe Ratio = (Return – RFR) / StanDev.
The higher the Sharpe Ratio the better as the investor is receiving a higher return per unit of risk.