Volatility and the Sharpe ratio: how bumpy, and was it worth it?
Aeterna Wealth · figures from our fund data, updated 12 Nov 2026
Volatility, measured as the standard deviation of returns, shows how widely a fund's returns swing around their average: the median large cap fund's was about 13.6% a year over the last 3 years, the median small cap fund's 17.8%. The Sharpe ratio divides the return above a risk-free rate by that volatility: how much extra return each unit of swing earned.
Reading volatility
As a rough guide, in about two years out of three a fund's yearly return lands within one standard deviation of its average. Higher volatility means bigger swings both ways, and a harder ride to sit through.
Reading the Sharpe ratio
- Higher is better, but only compare funds in the same category over the same period.
- It treats rises and falls alike; downside capture and maximum drawdown say more about the falls.
- Three years is a short sample; a Sharpe ratio can change a lot after one good or bad year.
Common questions
Is a low-volatility fund always safer?
Usually smoother, but a fund can be low-volatility and still fall hard in a crash. Check its maximum drawdown too.
Do your ratings use the Sharpe ratio?
Not directly; we use the information ratio (return over the index per unit of tracking error), downside behaviour and consistency, which suit comparing funds within a category better.
Where can I see these numbers?
On every fund page and comparison page on our site.
Want this worked out for your money?
A first conversation is free. We reply within one working day.
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General information, not investment or tax advice for your situation. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Past performance does not guarantee future returns.
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