The Sharpe ratio is a measure of risk-adjusted performance of an asset or an investment strategy. It is defined as the ratio of the excess expected return (with respect to the risk-free rate) to the standard deviation of the asset.

The Sharpe ratio is used to characterize how well the return of an asset compensates the investor for the risk taken. When comparing two assets against the same risk-free benchmark, the asset with the higher Sharpe ratio gives more return for the same risk. Investors are often advised to pick investments with high Sharpe ratios.

This ratio was developed by William Forsyth Sharpe. Sharpe originally called it the "reward-to-variability" ratio before it began being called the Sharpe Ratio by later academics and financial professionals.