A risk-adjusted measure developed by Nobel Laureate William Sharpe. It is calculated by using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the subaccount’s historical risk-adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a subaccount’s annualized excess returns by its annualized standard deviation.
Since this ratio uses standard deviation as its risk measure, it is most appropriately applied when analyzing a subaccount that is an investor’s sole holding. The Sharpe Ratio can be used to compare two subaccounts directly on how much risk a subaccount had to bear to earn excess return over the risk-free rate.
Origin
This ratio is calculated for the past 36-month period by dividing a subaccount’s annualized excess return by the subaccount’s annualized standard deviation. It is recalculated on a monthly basis.