Sharpe ratio

In finance, the Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk (and is a deviation risk measure), named after William F. Sharpe.

Since its revision by the original author, William Sharpe, in 1994, the ex-ante Sharpe ratio is defined as:

where ${\displaystyle R_{a}}$ is the asset return, ${\displaystyle R_{b}}$ is the return on a benchmark asset, such as the risk free rate of return or the return of an index such as the S&P 500. ${\displaystyle E[R_{a}-R_{b}]}$ is the expected value of the excess of the asset return over the benchmark return, and ${\displaystyle {\sigma }}$ is the standard deviation of the asset excess return.

...
Wikipedia