Sharpe Ratio

A ratio that is used to determine potential Returns on Investment (ROI) compared to its risk.

Sharpe Ratio is a ratio that is used to determine potential Returns on Investment (ROI) compared to its risk. This ratio is useful to investors because it helps them to recognize whether an investment is worth the risk or is just another unprofitable one with no reasonable chance of bringing significant ROI.

Generally, experts advise investors who want to choose profitable investments with strong ROIs to choose those with high Sharpe ratios. These investments hold greater potential for profits than the risks.