Sharpe ratio

The Sharpe ratio is the most widely quoted measure of risk-adjusted return. It divides a fund's annualised return in excess of a risk-free rate (typically a short-term government or money market rate) by the annualised volatility of its returns over the same period. A ratio of 1.0 means the fund earned one unit of excess return for each unit of volatility; higher is generally considered more efficient, and a negative ratio means the fund underperformed cash.

Fund factsheets usually show the Sharpe ratio over three or five years using monthly returns.

Why it matters

Raw returns reward risk-taking; the Sharpe ratio asks whether the risk was paid for. It lets you compare a low-volatility bond fund with a high-volatility equity fund on a common footing, and it exposes funds whose strong headline return came with extreme swings. It is a standard column in fund comparison tools and a common input in quant research.

In the API

The three-year Sharpe ratio and the volatility it is built on are returned together.

json
{
  "headlineMetrics": {
    "sharpe3y": 0.85,
    "volatility3y": 14.2
  },
  "dataAsOf": "2026-06-30"
}

Example values. The ratio is dimensionless; volatility is an annualised percentage.

Common pitfalls

• The result depends on the risk-free rate the fund house used, which varies by currency and period. Compare funds computed with the same convention.
• Sharpe assumes symmetric, roughly normal returns. Strategies with rare large losses can show flattering ratios; pair it with maximum drawdown.
• Three-year figures are unstable; a single bad quarter dropping out of the window can move the ratio materially.