Sharpe Ratio Calculator
The Sharpe ratio measures return earned per unit of risk. It divides an investment's excess return over the risk-free rate by its volatility, so a higher Sharpe ratio means more reward for the risk taken. The result depends on the return period and volatility input you choose. It is not a guarantee of future risk-adjusted performance.
Estimate Sharpe ratio
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Sharpe ratio
0.53
The excess return is 8 percentage points, producing 0.53 units of return per unit of volatility.
Breakdown
- Portfolio return
- 12%
- Risk-free rate
- 4%
- Standard deviation
- 15%
How the Sharpe Ratio calculator works
Sharpe ratio is a risk-adjusted return measure. It is best used to compare similar strategies over the same measurement period.
The calculator subtracts the risk-free rate from portfolio return to find excess return. It then divides that excess return by standard deviation, which is the volatility input.
sharpe_ratio = (portfolio_return - risk_free_rate) / standard_deviation- Portfolio return, risk-free rate, and standard deviation are entered as percentage points.
- The result is unitless because percentage points divide by percentage points.
- If standard deviation is zero or lower, the calculator returns zero because the ratio is not meaningful.
When to use it
Helpful for
- Comparing risk-adjusted returns across similar funds, portfolios, or strategies.
- Checking whether extra return compensated for extra volatility.
- Reviewing performance over the same period with the same return frequency.
Can mislead when
- Returns are not roughly symmetric or include rare large losses.
- The measured period is too short to capture a full market cycle.
- The volatility input excludes fees, leverage, liquidity risk, or hidden tail risk.
Common mistakes
- Comparing strategies measured over different time windows.
- Using a stale risk-free rate when interest rates have changed materially.
- Treating upside volatility and downside volatility as equally harmful.
- Relying on Sharpe ratio for strategies with skewed or fat-tailed returns.
Worked example
The default inputs use a 12% portfolio return, 4% risk-free rate, and 15% standard deviation. Sharpe ratio is (12 - 4) divided by 15, or 0.53.
| Input | Value |
|---|---|
| Excess return | 8 pts |
| Sharpe ratio | 0.53 |
Frequently asked questions
As a rough guide, a Sharpe ratio under 1 is considered subpar, around 1 is acceptable, 2 is very good, and 3 or higher is excellent. Context matters: compare it across similar strategies over the same period, since the ratio is sensitive to the time window measured.
It is the return on an essentially riskless asset, usually a short-term Treasury bill. It represents the baseline return you could earn without taking market risk, so the Sharpe ratio only credits return earned above it.
Standard deviation measures how much returns vary around their average, a common proxy for risk. Dividing excess return by it shows how efficiently an investment converts volatility into return.
It treats upside and downside volatility the same and assumes returns are roughly normally distributed. For skewed or fat-tailed strategies, measures like the Sortino ratio can describe risk more faithfully.
Compare return with fundamentals
Use the screener to weigh growth, valuation, and risk before relying on one risk-adjusted ratio.