30. Sharpe ratio is defined as the excess return of the portfolio divided by the risk of the portfolio as measured by the standard deviation of its returns. Portfolio excess return is the realized return of the portfolio minus the return from the riskless asset. It attempts to measure the excess return per unit of risk undertaken by the portfolio manager. The measure can be applied to portfolios or to asset classes. The higher the Sharpe ratio, the better is the performance of the portfolio manager or the asset class.