Sharpe ratio
A measure that can be considered an indication of the reward-to-risk efficiency of an investment. The ratio is calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the portfolio’s standard deviation. The risk-free return is assumed to be the same as that for government treasury bills. Should total return fall below the risk-free level, the ratio is negative and cannot be used to assess risk utilization.