The Sharpe Ratio is a metric used to measure the risk-return relationship of an investment or portfolio. It is calculated by subtracting the risk-free interest rate from the annual average return of an investment and dividing the result by the portfolio's average volatility (standard deviation). A higher Sharpe Ratio indicates that a portfolio has performed better relative to its risk potential. This metric is particularly useful for assessing the efficiency of investments, especially when comparing different strategies.
