EPR measures how well your portfolio is built. Sharpe measures how well it performed. A lucky bet can have a great Sharpe ratio. It won't have a great EPR.
The Paradox
Your portfolio returned 40% last year with a Sharpe ratio of 1.2. Yet EPR gives it a score of 52. Meanwhile, a boring diversified portfolio with 10% returns scores 80.
You're not crazy. This feels counterintuitive.
But EPR and Sharpe are measuring fundamentally different things.
The Industry Standard
The Sharpe Ratio is the finance industry's go-to measure of risk-adjusted return. It takes the portfolio's return, subtracts the risk-free rate, and divides by the portfolio's volatility.
It answers one question: “How much return did I get per unit of risk?”
It's useful. It's also incomplete.
What Sharpe Misses
Sharpe is backward-looking. It rewards whatever worked, regardless of whether it was smart or lucky. Consider three scenarios.
100% TSLA, up 40% in a low-volatility year.
Sharpe says: “Excellent!”
Reality: extreme concentration in a single position.
VTI and VOO held together, with 95% overlap.
Sharpe says: “Fine.”
Reality: you're paying two expense ratios for the same stocks.
80% in one stock that happened to rise.
Sharpe says: “Great risk-adjusted return!”
Reality: concentration risk completely ignored.
What EPR Adds Beyond Sharpe
Sharpe asks one question. EPR asks dozens. Here is what each one covers.
Think of it as an intelligent portfolio audit that adapts to your holdings, from a simple 3-fund setup to a complex multi-asset allocation. See all 5 EPR factors
The Car Analogy
Sharpe Ratio: “This car went fast last year.”
EPR: “This car has good brakes, balanced tyres, a full tank, working seatbelts, and went reasonably fast.”
Both matter. Only one describes how the car is built.
Illustrative Example
Hypothetical portfolios for illustration only. Past performance is not indicative of future results.
Portfolio A holds 50% Tesla and 50% Apple. It returned 40% last year with a Sharpe ratio of 1.24. EPR scores it 52 -- high concentration, single sector, no income component, and high volatility.
Portfolio B holds VTI at 60%, BND at 30%, and cash at 10%. It returned 10% with a Sharpe ratio of 1.00. EPR scores it 80 -- diversified across asset classes, balanced strategy, and lower volatility.
The first portfolio performed better. The second portfolio is better built. EPR and Sharpe measure different things. Sharpe describes how the portfolio performed. EPR describes how it's built. A concentrated portfolio can have strong returns in a given period while having structural characteristics that lower its EPR score -- concentration, overlap, or strategy misalignment.
Educational Content: This article is for educational purposes only and does not constitute investment advice. EPR is a proprietary scoring system that describes portfolio characteristics based on objective metrics -- it does not predict future performance or outcomes. Individual views on risk factors may differ from the weightings used in EPR calculations. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions.
See how your portfolio scores on both performance and structure.
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