what the sharpe ratio can tell you
the sharpe ratio is one of the most widely used methods for measuring risk adjusted relative returns it compares a fund s historical or projected returns relative to an investment benchmark with the historical or expected variability of such returns the risk free rate was initially used in the formula to denote an investor s hypothetical minimal borrowing costs 1 more generally it represents the risk premium of an investment versus a safe asset such as a treasury bill or bond 