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  1. Home
  2. /Glossary
  3. /Sharpe Ratio
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Sharpe Ratio

A measure of risk-adjusted return.

Definition

A measure of risk-adjusted return. It tells you how much extra return you're getting per unit of risk (volatility). A Sharpe ratio above 1 is decent, above 2 is very good, and above 3 is exceptional. In crypto, most assets have lower Sharpe ratios than traditional assets because of extreme volatility.

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Related Terms

Volatility

How much an asset's price fluctuates over time.

Risk Management

Strategies for limiting potential losses in your investments.

Risk-Reward Ratio

The relationship between your potential loss and potential gain on a trade.

Accumulation Phase

A period when smart money quietly buys up an asset before a major price move.

Annualized Return

The average yearly return on an investment, calculated to account for compounding.

Arbitrage

Profiting from price differences of the same asset across different markets.

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