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Sharpe Ratio

The Sharpe Ratio is one of many metrics used to assess the performance of an asset. A Sharpe Ratio depends on the volatility and returns of the asset and is used to measure risk-adjusted returns.

A Sharpe Ratio is found by dividing the returns above the risk-free rate by the volatility of the asset. This creates a single number which allows comparisons to be standardized. Although higher Sharpe Ratios are always better, there are many other factors that need to be considered for an investment.