Concept · Portfolio performance & risk decomposition
Sharpe ratio
Return per unit of volatility.
In depth
Excess return per unit of total volatility. Useful as a headline, but it rewards factor beta and residual skill equally — the decomposition is what separates the two.
Formula
Sharpe = (r_p − r_f) / σ_p
Referenced by (2)
- Beyond Active Share
A within-mandate manager-efficiency framework using ERM3 residual decomposition
- Cascade Hedging and the Cost of Interpretability
Subsector ETF value, joint optimization, and executable hedge layers across 9,074 US mutual funds