A rough guide to whether the rewards from an investment justify the risk, invented by Bill Sharpe, a winner of the Nobel prize for economics and co-creator of the capital asset pricing model. You simply divide the past return on the investment (less the risk-free rate) by its standard deviation, the simplest measure of risk. The higher the Sharpe ratio is the better, that is, the greater is the return per unit of risk. However, as it is a backward-looking measure, based on what an investment has done in the past, the Sharpe ratio does not guarantee similar performance in future.