Sharpe Ratio
A measure of return per unit of risk: average return divided by volatility.
The Sharpe ratio condenses the return/risk relationship into one number: it takes the average return (usually above the risk-free rate) and divides it by the standard deviation of returns, i.e. volatility. It is often annualized by scaling the daily figure by the square root of the number of trading days. A higher Sharpe means a given return was achieved more "calmly", at a smaller cost in swings. A low or negative one means risk was not rewarded. It lets you compare two portfolios of different volatility on a common scale, as return alone, without risk context, can be misleading. It is a historical, descriptive measure: computed from past data and sensitive to the chosen time window. It is not a forecast nor a buy/sell signal.
In plain words
Tells you how much return you got for the swings you endured. A high Sharpe = a decent gain with a calmer ride; a low or negative one = lots of stress for little payoff.
Example
Two portfolios each returned +40% over a year. The first, with 20% volatility, has a Sharpe of ~2; the second, with 80% volatility, a Sharpe of ~0.5. The same return, but the first achieved it far more "cheaply" in risk terms.
Also known as: sharpe ratio, wskaźnik sharpe, współczynnik sharpe, коефіцієнт шарпа