What is Sharpe Ratio and how to use it?

What is Sharpe Ratio and how to use it?

Sharpe Ratio is the ratio of surplus return to standard deviation. It measures the return of the fund. which will look at the return per 1 unit of risk When you get it, try to compare that if you buy 1 retail piece, this price is the wholesale price, how much will it fall? The difference between the two prices is the Sharpe Ratio. In the form of funds as well, the higher the Sharpe Ratio number, the better. The Sharpe Ratio number can be calculated by the formula

Excess return ratio = (investment return - risk-free rate of return) / standard deviation of the portfolio's excess return.

Benefits of Sharpe Ratio

If the ratio of the Sharpe Ratio is higher, the return is more worthwhile, which Sharpe Ratio numbers will help to look at the value more. Because sometimes if looking at the total return alone, it may be seen as a lot. But if you try to calculate the Sharpe Ratio number, it may not be worth it. The Sharpe Ratio method is very useful for investing in assets that are not very different. But if they are different, they may not have much effect.

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