Sharpe Ratio – A standard risk-adjusted performance metric. It is calculated as the portfolio (or strategy) excess return (return minus risk-free rate) divided by the standard deviation of returns. In other words, it shows how much excess return is obtained per unit of volatility. In algorithmic trading, a higher Sharpe indicates better risk-adjusted returns. Strategy testers often report the Sharpe ratio (or similar metrics) to help compare different robots or parameter sets.

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