Understanding Sharpe Ratio and Risk Metrics

Sharpe Ratio Explained

Measuring risk-adjusted returns.

What is Sharpe Ratio?

The Sharpe ratio measures return per unit of risk:

Sharpe = (Return - Risk-Free Rate) / Standard Deviation

Interpretation

Sharpe RatioMeaning < 1.0Below average 1.0 - 2.0Good 2.0 - 3.0Very good > 3.0Excellent

Why It Matters

• Compares investments fairly
• Accounts for risk taken
• Higher is better
• Helps optimize portfolio

Our Pool Sharpe Ratios

PoolSharpe Ratio Secure Income2.8 Balanced Income2.3 Growth1.9 Recovery1.6 High Yield1.4

Using This Information

Higher Sharpe = better risk-adjusted returns

Secure Income offers best risk/reward ratio