Use the Coefficient of Variation or the Sharpe Ratio when comparing Investments?
You want to look at both. There are many metrics and ratios that are important but let’s look at CV and the Sharpe ratio. Here is a screenshot from Zoonova.com that shows the Sharpe and CV calculation for Stocks and ETFs in a portfolio.
CV
The Coefficient of Variation is a measure of relative variability. It is the ratio of the standard deviation to the mean (average) and helps investors select investments based on the risk/reward ratio and their profiles. For example, an investor who is risk-averse may want to consider assets that have historically had a low degree of volatility and a high degree of return, in relation to the overall market or its industry. Conversely, risk-seeking investors may look to invest in assets that have had a high degree of volatility. The lower the ratio the better your risk/return trade-off.
Sharpe
The Sharpe Ratio is a measure that indicates the average return minus the risk-free return divided by the standard deviation of return on an investment. The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations. The higher the Sharpe Ratio the better.
So looking at the analytics grid above you can see what securities are returning a low CV ratio to a high Sharpe ratio. Many of the other metrics and ratios that are being calculated in the grid are also very important when picking securities but one that I like is M2 ( M-squared).
(a.k.a. Modigliani, M2, M-Squared) In simple words, it measures the returns of an investment portfolio for the risk taken, relative to some benchmark portfolio (S&P 500). Popularly known as Modigliani Risk Adjustment Performance Measure or M2, it was developed by Nobel prize winner Franco Modigliani and his granddaughter, Leah Modigliani, in 1997. it is in % and easy to read because the higher the ratio the better the investment.
Cheers.