Sharpe ratio, in plain English

Sharpe ratio is a simple score: how much excess return you earned per unit of volatility.

The idea

Return alone is incomplete. A strategy that doubles in a year while swinging ±40% is not the same as one that compounds steadily. Sharpe divides extra return (above a risk-free or zero benchmark, depending on definition) by the standard deviation of returns.

Higher generally means more return per unit of bumpiness, in the sample you measured.

What it does not say

• It does not guarantee future results.
• It is sensitive to the window (YTD vs full history) and to how returns are sampled.
• Fat tails, leverage, and rare crashes can look “fine” on Sharpe until they are not.
• Paper Sharpes can differ from live trading (fills, costs, capacity, psychology).

How we use it here

On the Live Paper desk, Sharpe may show as — until there is enough history. Multi-year research Sharpes for the paper-book mix are on Backtests. Sleeve blurbs on Strategies are plain-English context, not a live audited track record. Live paper results will differ from historical simulation.

Bottom line

Sharpe is useful risk language. It is also incomplete. It never replaces the harder question: did you lose money when it mattered?