The Sharpe ratio divides a return above a safe rate by how much that return swings. Higher means more return for each unit of risk, though swings do not capture every kind of risk.
What the video says
In hedge funds, two funds can return the same, and one is far bumpier. The Sharpe ratio measures that. Take the return above a safe rate, and divide by how much it swings. Say both funds earn twelve percent, and cash pays four. That's eight above the safe rate. Fund A swings by eight. Its ratio is one. Fund B swings by sixteen. Its ratio is zero point five. Higher means more return, for each unit of risk. But swings aren't all of risk. A strategy can look calm until one big loss. So why do investors care? Managers are often ranked by it. Same return. Count the bumps.
In the glossary: Sharpe ratio
A simple example with round numbers, not advice. Terms vary by fund.
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