How Does the Sharpe Ratio Differ from Beta in Assessing Crypto Risk?
The Sharpe Ratio measures an investment's risk-adjusted return by calculating the excess return over the risk-free rate per unit of total volatility (standard deviation). Beta measures only the asset's sensitivity to the overall market (systemic risk).
For crypto, the Sharpe Ratio is often preferred as it accounts for the high total volatility, providing a more comprehensive view of the return generated for the risk taken, whereas Beta is primarily used for calculating the cost of equity.
Glossar
Sharpe Ratio
Risk ⎊ This metric quantifies the excess return generated by a strategy relative to its total volatility, providing a standardized measure of risk-adjusted performance for derivatives positions.
Beta
Measurement ⎊ Beta quantifies the systematic risk of an asset relative to a specific market benchmark.