Sharpe ratio
A measure of return relative to the risk taken — how much return you earn per unit of volatility.
The Sharpe ratio divides excess return (above the risk-free rate) by volatility. A higher Sharpe means better compensation for the risk you carry. It is useful for comparing two portfolios that look similar on return but differ in risk.
ExampleA portfolio returning 8% with 10% volatility, at a 2% risk-free rate, has a Sharpe of about 0.6.