Sharpe Ratio
Risk MetricSharpe Ratio is a measure of risk-adjusted return calculated as (annualized return − risk-free rate) ÷ annualized volatility.
Developed by Nobel laureate William Sharpe, the Sharpe Ratio answers a simple question: how much return did you earn per unit of risk taken? A Sharpe of 1.0 means you earned 1% of excess return for every 1% of annualized volatility. A Sharpe of 2.0 is excellent by any standard. A negative Sharpe means you lost money (after subtracting the risk-free rate) while taking on volatility.
For crypto, Sharpe ratios are typically calculated using 365-day annualization (not the 252-trading-day standard for equities, because crypto markets trade every day). The risk-free rate is typically the US 10-Year Treasury yield — about 4.2% in 2026.
ISO 20022 coins all currently show negative Sharpe ratios in the 1-year window due to the 2025 crypto market correction. This does not mean they're bad investments forever — it means the last 12 months had negative excess return relative to Treasuries. Sharpe is a trailing metric, not a forecast.
Worked example: a coin returning 45% for the year with 80% annualized volatility, at a 4.2% risk-free rate, has a Sharpe of (0.45 − 0.042) ÷ 0.80 ≈ 0.51 — modest reward for the risk taken. Flip the return to −15% and it turns negative: (−0.15 − 0.042) ÷ 0.80 ≈ −0.24.
Crypto Relevance
Comparing Sharpe ratios across XRP, QNT, HBAR, and other ISO 20022 coins tells you which coin delivered the best return per unit of risk over the selected period — useful for portfolio allocation decisions. Informational only, not investment advice.
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Join ISO 20022 investorsRelated Terms
Sortino Ratio
Sortino Ratio is like the Sharpe Ratio but only penalizes downside volatility, making it better for assets like crypto where large upside moves are common and desirable.
Annualized Volatility (Sigma)
Annualized Volatility (sigma) measures how much a price fluctuates over a year, calculated as the standard deviation of daily log returns scaled by √365.
Risk-Adjusted Return
Risk-adjusted return measures how much return an investment produced relative to the risk taken to earn it, not just the raw gain.
Risk-Free Rate
The Risk-Free Rate is the theoretical return available with zero risk, typically the US 10-Year Treasury yield (~4.2% in 2026), used as the benchmark in the Sharpe Ratio.
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Last reviewed: 2026-07-03