Understanding the Sharpe Ratio in Portfolio Management

In the world of portfolio management, understanding risk-adjusted performance measures is crucial for evaluating the effectiveness of an investment strategy. One commonly used metric is the Sharpe Ratio, which is used to assess the performance of an investment by adjusting for its risk.

The Sharpe Ratio is calculated by subtracting the risk-free rate from the return of the portfolio, and then dividing this result by the standard deviation of the portfolio's excess return. A higher Sharpe Ratio indicates better risk-adjusted performance.

Given this information, which of the following statements about the Sharpe Ratio is correct?