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This **ratio** was developed by William Forsyth Sharpe in 1966. **Sharpe** originally called it the "reward-to-variability" **ratio** in before it began being called the **Sharpe** **Ratio** by later academics and financial professionals. Recently, the (original) **Sharpe** **ratio** has often been challenged with regard to its appropriateness as a fund performance measure during evaluation periods of declining markets (Scholz 2007).

The **Sharpe ratio** or **Sharpe index** or **Sharpe measure** or **reward-to-variability ratio** is a measure of the mean return per unit of risk in an investment asset or a trading strategy.

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 each with the expected return *E*[*R*] against the same benchmark with return *Rf*, 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.

**Sharpe** ratios, along with Treynor ratios and Jensen’s alphas are often used to rank the performance of portfolio managers.

A **ratio** developed by Frank A. **Sortino** to differentiate between good and bad volatility in the Sharpe **ratio**. This differentiation of upwards and downwards volatility allows the calculation to provide a risk-adjusted measure of a security or fund's performance without penalizing it for upward price changes. It it is calculated as follows:

The **Sortino** **ratio** is similar to the Sharpe **ratio**, except it uses downside deviation for the denominator instead of standard deviation, the use of which doesn't discriminate between up and down volatility.