When would a portfolio be considered to have a low Sharpe Ratio?

A portfolio is considered to have a low Sharpe Ratio when it exhibits high volatility coupled with low returns. The Sharpe Ratio is a measure of risk-adjusted return, calculated by taking the difference between the portfolio's return and the risk-free rate, and dividing it by the portfolio's standard deviation (a measure of risk). When a portfolio faces high volatility, it indicates that the returns are highly variable; when those returns are also low, the ratio indicates that the investor is not being adequately compensated for the level of risk they are taking.

In this scenario, if a portfolio has high volatility without commensurate returns, it suggests that investments could potentially be better placed elsewhere, as the risk-reward trade-off is unfavorable. Hence, this situation leads to a low Sharpe Ratio, which signals that the portfolio's performance is inadequate when adjusted for risk.

The other choices do not accurately reflect the conditions that define a low Sharpe Ratio. While other options do touch on elements of returns and risk, they do not capture the specific scenario where the return fails to justify the amount of risk taken, which is central to understanding the concept of the Sharpe Ratio.