New Delhi, March 12 -- To make informed investment choices, it is essential to analyse potential profits and losses. By considering risks, investors can determine whether an investment aligns with their financial goals. And to analyse risks, a Sharpe Ratio is a key metric.

The Sharpe Ratio is a tool to determine potential risk-adjusted returns for any investment, including individual stocks, portfolios and hedge funds. Risk-adjusted returns measure the return on an investment after considering the risk taken to earn it. Therefore, higher returns reveal greater risk. Hence, a high Sharpe Ratio will show that greater returns have been achieved by taking higher risks.

The formula for calculating the Sharpe Ratio is-(investment return-risk-...