Developed by Nobel laureate William F. Sharpe in 1966, the Sharpe Ratio is the gold standard for comparing risk-adjusted returns. It answers: 'For every unit of risk I take on, how much excess return do I get above the risk-free rate?'
A Sharpe Ratio above 1.0 is generally considered good. Above 2.0 is excellent. Below 1.0 means the investment may not be adequately compensating investors for the volatility risk they are taking. A negative Sharpe means the investment underperformed even a risk-free savings account.
The Sharpe Ratio uses total volatility (both upside and downside fluctuations) as its risk measure. This is its main weakness — it penalizes upside volatility equally with downside volatility. For skewed return distributions (e.g. assets with frequent small gains and occasional large losses), the Sortino Ratio is a more informative alternative.
On StressTest.pro, the Sharpe Ratio is calculated using daily return data annualized over the full measurement window, with the prevailing 10-Year US Treasury yield as the risk-free rate proxy.