Equations · Finance and economics
Sharpe ratio
Return above the risk-free rate, per unit of volatility.
S = (R_p − R_f) / σ_p
Aethel says
S equals the quantity R sub p minus R sub f, over sigma sub p
What it says
It asks how much extra return an investment earned for the risk it took. Comparing two portfolios, the higher Sharpe ratio rewarded its risk better.
Symbol by symbol
| Symbol | Say it | Means |
|---|---|---|
| R_p | R sub p | the portfolio's return |
| R_f | R sub f | the risk-free rate |
| σ_p | sigma sub p | the standard deviation of the portfolio's returns |
More onσSigma
Where you meet it
Portfolio management and the CFA curriculum.
Questions
How do you say Sharpe ratio out loud?
S = (R_p − R_f) / σ_p is read: “S equals the quantity R sub p minus R sub f, over sigma sub p.” That is exactly what Aethel says when it meets the formula in a book.
What does R_p mean in Sharpe ratio?
R_p (said “R sub p”) is the portfolio's return.
What does R_f mean in Sharpe ratio?
R_f (said “R sub f”) is the risk-free rate.
Can I listen to the equations in my own textbook like this?
Yes. Upload a PDF, EPUB or text file and Aethel reads it aloud with every equation spoken as maths, the way it reads this one, and highlights each sentence as it goes. You can start free.