Sharpe ratios

The Sharpe ratio is a simple metric of risk adjusted return which was pioneered by William F. Sharpe. Sharpe ratio is useful to determine how much risk is being taken to achieve a certain level of return. In finance, you are always seeking ways to improve your Sharpe ratio, and the measure is very commonly quoted and used to compare investment strategies.

The original 1966 Sharpe ratio calculation is quite simple:

$$ S = \frac{ R_a - r_f }{\sigma_a} $$