Sharpe ratio
Shows how much return came per unit of monthly volatility.
Sharpe compares average return with how much that return moved around. In plain language, it asks whether the account got its result on a relatively smooth path or a very jumpy one.
The metric helps compare accounts where not only the final percent matters, but also the amount of fluctuation used to get it. Two accounts can earn the same return, but the account with smaller swings usually gets the higher Sharpe.
A value below 0 means the average return was negative. Around 1 is often read as decent, above 2 as strong, but only with enough history. Common mistakes are trusting Sharpe after 2-3 months or forgetting that it can miss rare large losses.
Example: an account averages +2% per month with 4% monthly volatility. The monthly ratio is 0.5, and after annualizing Sharpe is about 1.7. If the same average return comes with 10% volatility, Sharpe is about 0.7.
How we compute it
It is calculated from monthly TWR returns: average monthly return is divided by sample standard deviation and annualized. The metric is not shown when there are fewer than six months.