# Sharpe ratio

### From Conservapedia

The **Sharpe ratio** or **reward-to-variability ratio** is a financial ratio that measures the compensation (called a "risk premium") an investor receives for bearing an additional unit of risk. It is defined as

where *E*(*r*) is the asset's expected return, *r*_{f} is the risk-free rate (normally, the rate of return of a United States T-bill) and σ is the risk associated with the investment.

## Development

The concept of a Sharpe ratio was first developed by William Sharpe, a professor of finance at Stanford University.