BRVX Glossary · Sharpe ratio · Updated September 25, 2026
The Sharpe ratio measures return per unit of risk: a strategy's average return above the cash rate, divided by the standard deviation of its returns. A Sharpe ratio of 1 means the strategy earned one unit of excess return for each unit of volatility it carried.
The formula
Sharpe (Return − Cash rate) ÷ Std. deviation
12% return, 4% cash rate and 16% volatility give a Sharpe ratio of 0.5.
How it works
- Return Average, annual
- Excess Minus cash rate
- Sharpe ÷ volatility
Reading the number
- Below 0: the strategy did worse than holding cash.
- 0–1: positive, but the swings were large relative to the gain.
- 1–2: generally considered good.
- Above 3: rare over long periods; check the data before believing it.
Worked example
Strategy A returned 20% a year with 25% volatility; strategy B returned 12% with 8% volatility. With a 4% cash rate, A scores (20 − 4) ÷ 25 = 0.64 and B scores (12 − 4) ÷ 8 = 1.0. B delivered less return but more of it per unit of risk.
Annualising matters: a daily Sharpe ratio is multiplied by the square root of 365 on a 24/7 market, or of about 252 on a stock exchange calendar, before it is compared with published figures.
Where it misleads
The ratio treats upside and downside swings the same and assumes returns are roughly normal. Strategies that collect small gains and occasionally lose big — selling options, for example — can show a high Sharpe until the loss arrives. The Sortino ratio, which counts only downside volatility, is the usual companion.
On BRVX
A trading record on BRVX can be scored the same way from the History tab: take each period's return on the account, subtract the cash rate and divide by the spread of those returns. Leverage scales return and volatility together, so raising it does not improve a Sharpe ratio; fees and funding lower it.
Questions about Sharpe ratio
What is a good Sharpe ratio?
Above 1 is usually considered good, above 2 very good, and above 3 exceptional.
Who created the Sharpe ratio?
Economist William F. Sharpe, in 1966.
Does leverage change the Sharpe ratio?
In theory no, because it scales return and volatility equally; in practice costs reduce it.
Leverage works both ways: a small move against you can lose you the whole margin.
Sharpe ratio: next steps on BRVX
Sharpe ratio on AMZN/USDT: 0.1% a round trip in fees, 0.0046% per hour funding on a long, about 1.1 USDT a day per 1,000 USDT.
Read next: Drawdown, Volatility and Kelly criterion.
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