Sharpe = dfracmathbbE[R_p] - r_fσ(R_p) — excess return per unit of total risk. Annualised by multiplying by √(252) from daily, √(12) from monthly (assuming iid returns). Sample Sharpe is itself a noisy estimator with standard error ≈ sqrt(1 + tfrac12S^2)/T — for typical T and S, the 95% CI is embarrassingly wide. Penalises symmetric vol; option-selling strategies game it by trading negative skew for raised Sharpe (Sharpe is unfair to negatively-skewed returns — see Sortino).