It is a method, which is used to measure the fund's risk-adjusted return on an investment. This tutorial explains how to calculate the Sharpe Ratio S(x).
A manager generates a return of 15% with the risk free-rate of 5%, and a manager's portfolio has a standard deviation of 8%, then find the sharpe ratio for manager portfolio?
Expected portfolio return= 15%, Risk free rate= 5% Portfolio standard deviation = 8%
Substitute the given values in the formula,
|S(x)||=||(Expected portfolio return - Risk free rate) / Portfolio standard deviation|
Simple tutorial on Sharpe Ratio with definition, formula and example to learn online.