Ch.10 · Risk Measures and Ratios · medium
Fund A has a Sharpe Ratio of 1.2 and Fund B has a Sharpe Ratio of 0.8. Which is a better risk-adjusted investment?
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EXPLANATION
Fund A with a Sharpe Ratio of 1.2 is superior to Fund B with 0.8. Fund A generates 1.2 units of excess return for every unit of risk taken, while Fund B generates only 0.8 units. Higher Sharpe Ratio = better risk-adjusted performance. The Sharpe Ratio enables comparison of funds with different return and risk profiles.
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