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Sharpe Ratio Calculator.

Calculate risk-adjusted excess return using an explicit risk-free rate.

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Sharpe ratio: 1

Sharpe ratio

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FAQs

How does the sharpe ratio calculator work?

Enter the requested values to receive a deterministic result. No live market, tax, or jurisdiction data is inferred.

Use Cases

Evaluate investment performance

Compare different portfolios or funds by their risk-adjusted returns to identify which provides better compensation for risk.

Example: Compare two mutual funds with different returns and volatilities.

Optimize portfolio allocation

Use the Sharpe ratio to assess whether adding an asset improves the risk-return profile of your overall portfolio.

Example: Test adding a bond fund to a stock portfolio.

Frequently Asked Questions

What is the Sharpe ratio?
The Sharpe ratio measures risk-adjusted return by subtracting the risk-free rate from the portfolio return and dividing by volatility (standard deviation). A higher ratio indicates better return per unit of risk.
How do I interpret the Sharpe ratio?
Generally, a Sharpe ratio above 1 is considered good, above 2 is very good, and above 3 is excellent. A ratio below 1 may indicate that the return is not sufficient for the risk taken.
What inputs do I need?
You need the portfolio's expected or historical return, the risk-free rate (e.g., Treasury yield), and the portfolio's volatility (standard deviation of returns). All should be in the same time period (e.g., annual).

Tips & Common Mistakes

Tips

  • Use annualized figures for return and volatility to get a comparable Sharpe ratio.
  • Ensure the risk-free rate matches the time period of your return (e.g., annual risk-free rate for annual returns).
  • A higher Sharpe ratio is better, but consider the consistency of returns over time.
  • Use historical data but remember past performance does not guarantee future results.

Common Mistakes to Avoid

  • Using different time periods for return and volatility (e.g., monthly return with annual volatility).
  • Forgetting to subtract the risk-free rate from the portfolio return.
  • Using nominal returns instead of real returns when inflation is significant.

Last updated: August 13, 2026