Sharpe Ratio Calculator

Calculate the Sharpe ratio of an investment portfolio given its return, risk-free rate, and standard deviation.

Portfolio Return (%)

Risk-Free Rate (%)

Standard Deviation (%)

Result

Please check your inputs.

Enter the average annual return of your investment portfolio (as a percentage) in the 'Portfolio Return' field. Input the current risk-free rate (e.g., 10-year Treasury yield) as a percentage in the 'Risk-Free Rate' field. Provide the annualized standard deviation of your portfolio's returns as a percentage in the 'Standard Deviation' field. Click the 'Calculate Sharpe Ratio' button to instantly compute the ratio. Review the result — a higher Sharpe ratio indicates better risk-adjusted returns; compare it to other investments or benchmarks.

📖 How to Use This Tool

Enter the average annual return of your investment portfolio (as a percentage) in the 'Portfolio Return' field.

Input the current risk-free rate (e.g., 10-year Treasury yield) as a percentage in the 'Risk-Free Rate' field.

Provide the annualized standard deviation of your portfolio's returns as a percentage in the 'Standard Deviation' field.

Click the 'Calculate Sharpe Ratio' button to instantly compute the ratio.

Review the result — a higher Sharpe ratio indicates better risk-adjusted returns; compare it to other investments or benchmarks.

📝 What Is Sharpe Ratio Calculator?

The Sharpe Ratio is a widely used metric that measures the risk-adjusted return of an investment portfolio. Developed by Nobel laureate William Sharpe, it tells you how much excess return you are earning for each unit of volatility (risk) you take. This is crucial because two portfolios with similar returns can have vastly different risk levels. By calculating the Sharpe ratio, you can objectively compare investments on a level playing field. A higher Sharpe ratio means you are getting more return per unit of risk, making it an essential tool for portfolio optimization, fund evaluation, and personal financial planning.

🧮 Formula

Sharpe Ratio = (Rp - Rf) / σp where:

- Rp = Expected portfolio return - Rf = Risk-free rate (often a government bond yield) - σp = Standard deviation of the portfolio's excess returns (a measure of volatility) In plain English: subtract the risk-free rate from your portfolio's return to get the 'excess return', then divide that by the portfolio's volatility. The result shows how many units of return you achieve per unit of risk.

💡 Tips for Best Results

✨📊 Use annualized returns and standard deviation for consistency — mismatch in time periods skews results.

✨📈 Compare the Sharpe ratio against a relevant benchmark (e.g., S&P 500) to see if your portfolio adds value.

✨⏳ Be aware that the ratio is backward-looking — past performance doesn't guarantee future risk-adjusted returns.

✨🔍 Don't rely solely on Sharpe ratio; combine it with other metrics like maximum drawdown and Sortino ratio for a fuller picture.

❓ Frequently Asked Questions

What is considered a good Sharpe ratio?

Generally, a Sharpe ratio above 1 is considered good, above 2 is very good, and above 3 is excellent. However, context matters — compare to similar investments and market conditions.

Can the Sharpe ratio be negative?

Yes, a negative Sharpe ratio means the portfolio's return is less than the risk-free rate, indicating poor risk-adjusted performance. It may still be useful for loss-averse investors in volatile markets.

How is the Sharpe ratio different from the Sortino ratio?

The Sharpe ratio penalizes both upside and downside volatility equally, while the Sortino ratio focuses only on downside risk (negative volatility). For portfolios with frequent positive spikes, the Sortino ratio can be more informative.