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Glossary · PSX term

Sharpe ratio.

The Sharpe ratio measures return earned per unit of risk taken.

Definition

It divides return above a risk-free rate by volatility, so a higher Sharpe ratio means better risk-adjusted performance. It helps compare investments that have different levels of risk.

Worked example

A fund returning 25% with moderate volatility may have a better Sharpe ratio than one returning 30% with wild swings.

Related on PSX Clarity

Term
Standard deviation
Term
Volatility
Term
Risk-free rate
Term
Maximum drawdown

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