When choosing between two investments, each with some risk, the optimal amo
When choosing between two investments, each with some risk, the optimal amount of exposure to each investment should be proportional to this quantity, calculated by taking the expected return relative to a risk-free investment, and dividing by the expected standard deviation of the return. When it was introduced in 1966, its creator called it the reward-to-variability ratio. FTP name this quantity whose namesake, a Stanford professor, won the 1990 Nobel Prize in Economics.
When choosing between two investments, each with some risk, the optimal amount of exposure to each investment should be proportional to this quantity, calculated by taking the expected return relative to a risk-free investment, and dividing by the expected standard deviation of the return.