Sharpe Ratio

The Sharpe ratio, created by Nobel economist William Sharpe, asks: was the return worth the rollercoaster? Take the investment's return, subtract what you could have earned risk-free (such as T-bills), then divide by how wildly returns swung (their standard deviation).

Higher is better. A strategy that makes 10% with gentle swings beats one that makes 10% with stomach-churning swings. One weakness: it treats upside swings as "risk" too, which is why some prefer the Sortino ratio.