Standard Deviation, Sharpe Ratio and Beta
Updated 26 Aug 2026
CAGR tells you what a fund returned. These three numbers tell you what you endured to get it, and they only mean anything when compared against funds in the same category.
Standard deviation
How much returns varied around their average — a direct measure of volatility. Higher means a bumpier ride. A small-cap fund will always show a higher figure than a large-cap fund, which is why cross-category comparison is meaningless.
Sharpe ratio
Return above the risk-free rate, divided by standard deviation — return per unit of risk taken. Higher is better. Between two funds with the same CAGR, the higher Sharpe ratio delivered it with less turbulence.
Beta
Sensitivity to the benchmark. A beta of 1 moves with the index; 1.2 amplifies index moves by roughly 20% in both directions; below 1 suggests a defensive portfolio. Beta explains how much of the volatility is simply market exposure.
One number these miss
Standard deviation treats upside and downside swings identically, though only one of them hurts. Maximum drawdown — the largest peak-to-trough fall — is often the more useful question: can you hold on through that?
Frequently asked questions
Which single risk metric matters most?
None on its own. Standard deviation tells you how bumpy the ride was, Sharpe ratio whether that bumpiness was rewarded, and beta how much of it came from the market. Read all three alongside the fund's category.