Sharpe's measure of portfolio performance compares the risk premium on a portfolio to the portfolio's standard deviation of return.

Question

Quizplus · Accepted Answer

Sharpe's measure, also known as the Sharpe ratio, evaluates the performance of an investment by adjusting for its risk. It is calculated by subtracting the risk-free rate from the return of the investment (the risk premium) and dividing the result by the investment's standard deviation of returns. This measure helps investors understand how much excess return they are receiving for the extra volatility that they endure for holding a riskier asset.

Sharpe's Measure of Portfolio Performance Compares the Risk Premium on a Portfolio