The Sharpe ratio measures return per unit of total risk (volatility). A higher Sharpe means smoother, more efficient returns; above 1.0 is generally considered solid. Because it penalizes all volatility, including upside, it can understate strategies that have large winning trades.
This term belongs to Risk & statistics. See how it fits the bigger picture in The Money, part of the free DEGEN ACADEMY — or watch it play out on the live terminal.
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FAQ
What is Sharpe ratio?
The Sharpe ratio measures return per unit of total risk (volatility). A higher Sharpe means smoother, more efficient returns; above 1.0 is generally considered solid. Because it penalizes all volatility, including upside, it can understate strategies that have large winning trades.