Sharpe Ratio Calculator (Risk-Adjusted Return)
Enter the return, risk-free rate and volatility to measure return per unit of risk.
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Sharpe Ratio Calculator (Risk-Adjusted Return) by TheCalcTools
How the Sharpe Ratio Calculator (Risk-Adjusted Return) works
The Sharpe ratio divides the excess return over the risk-free rate by the volatility (standard deviation) of returns. Higher means more reward for each unit of risk.
Use the same period for all inputs (for example yearly returns and yearly volatility). Ratios above 1 are generally considered good, though it depends on the period and asset class.
The formula
Worked example
Using the default values shown in the calculator:
| Portfolio return (yearly) | 11 % |
|---|---|
| Risk-free rate | 4.2 % |
| Standard deviation of returns (yearly) | 15 % |
| Second portfolio return (to compare) | 8 % |
| Second portfolio standard deviation | 9 % |
- (11% − 4.2%) ÷ 15% = 0.45.
- The second portfolio scores 0.42, so the First portfolio is better on a risk-adjusted basis.
Result:
| Sharpe ratio | 0.45 |
|---|---|
| Second portfolio's Sharpe ratio | 0.42 |
| Better risk-adjusted | First portfolio |
| Excess return | 6.80% |
Frequently asked questions
What are the limits of the Sharpe ratio?
It treats upside and downside volatility the same and assumes roughly normal returns, which hides tail risks such as option-selling strategies.
Sources and further reading
- Wikipedia: Sharpe ratio
- Sharpe WF (1994). The Sharpe ratio. Journal of Portfolio Management 21(1):49-58
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This calculator gives estimates for information only. It is not financial advice, and your lender's or provider's figures will govern. Rates, fees and rules vary. See our disclaimer.