Sharpe Ratio
Excess return divided by volatility — how much extra return a strategy delivers per unit of risk.
Definition
The Sharpe ratio measures how much return a portfolio or strategy generates above the risk-free rate, per unit of volatility. It's the single most common measure of risk-adjusted return in finance.
Developed by William Sharpe in 1966 (originally as the "reward-to-variability ratio"). A Sharpe ratio of 1.0 means the strategy earns one percentage point of excess return for every percentage point of volatility — historically, that's roughly the long-run market average. A Sharpe of 2.0 is good; above 3.0 typically indicates either a genuinely strong strategy, an artifact (look-ahead bias, survivorship bias), or both.
Sharpe is widely used but has known weaknesses: it treats upside and downside volatility symmetrically (the Sortino ratio fixes this by penalizing only downside), and it's sensitive to the distribution assumption — a strategy with rare large losses can show a high Sharpe right up until the tail event lands.
Formula
Sharpe = (Strategy return − Risk-free rate) ÷ Strategy volatilityHow QScoring uses it
Sharpe ratio isn't a per-stock metric, so it doesn't enter the QScore directly. Where it matters is validation: QScoring's validation section commits to publishing a long-short quintile-spread Sharpe ratio of at least 1.5 before subscription billing turns on. Until that bar is cleared, the QScore is described as a methodology, not a strategy with demonstrated risk-adjusted return.