# Sharpe Ratio Calculator

URL: https://speedycalculator.com/calculators/finance/sharpe-ratio/
Last updated: 2026-10-25

> The Sharpe ratio calculator measures risk-adjusted return: how much excess return over the risk-free rate a portfolio earns per unit of volatility (standard deviation), and compares two portfolios.

## Inputs

- Portfolio return (%)
- Risk-free rate (%)
- Standard deviation of returns (%)
- Second portfolio – return (%)
- Second portfolio – standard deviation (%)

## Results

- Sharpe ratio
- Second portfolio – Sharpe ratio
- Excess return
- Better risk-adjusted return

## Formula

```
Sharpe ratio = (portfolio return − risk-free rate) ÷ standard deviation of returns
```

## Explanation

A higher Sharpe ratio means more return for the risk taken. Above 1 is considered good, above 2 very good. It assumes returns are roughly normally distributed and penalises upside volatility as much as downside.

### How to use the Sharpe Ratio Calculator

- **Portfolio return**
- **Risk-free rate**
- **Standard deviation of returns**
- **Second portfolio – return**
- **Second portfolio – standard deviation**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the portfolio's return and standard deviation (annualized), the risk-free rate, and optionally a second portfolio.

### Tips

- Use the nominal annual rate and pick the compounding frequency your bank or broker states.
- Small differences in return or fees compound into large differences over decades.
- Run the calculation with a cautious, a central and an optimistic return to see the range of outcomes.
- Past returns do not guarantee future returns – nothing here is investment advice.

### Common mistakes to avoid

- Comparing an APR with an APY or effective rate.
- Ignoring inflation, taxes and fees when judging a real return.
- Entering a percentage as a decimal (5 instead of 0.05 is correct here).

### Inputs explained

FieldWhat to enterPortfolio returnIn %Risk-free rateIn %Standard deviation of returnsIn %Second portfolio – returnIn %Second portfolio – standard deviationIn %

### What each result means

- **Sharpe ratio** = ([Portfolio return] - [Risk-free rate])÷[Standard deviation of returns]
- **Second portfolio – Sharpe ratio** = ([Second portfolio – return] - [Risk-free rate])÷[Second portfolio – standard deviation]
- **Excess return** = [Portfolio return] - [Risk-free rate]

### Example values

How the main result changes when **Portfolio return** changes and everything else stays at the example values above:

Portfolio return (%)Sharpe ratio5.50.18.250.283110.46713.750.6516.50.833221.2

## Worked example

Inputs — Portfolio return: 11 %; Risk-free rate: 4 %; Standard deviation of returns: 15 %; Second portfolio – return: 8 %; Second portfolio – standard deviation: 9 %.

Results — **Sharpe ratio = 0.467**; Second portfolio – Sharpe ratio = 0.444; Excess return = 7 %; Better risk-adjusted return = First portfolio.

## FAQ

**What is a good Sharpe ratio?**
Above 1 is good, above 2 very good, above 3 excellent.

**What risk-free rate should I use?**
The yield on short-term government bills, such as 3-month U.S. Treasuries.

**What are its limits?**
It treats upside and downside volatility alike – the Sortino ratio fixes that.

**What formula does the Sharpe Ratio Calculator use?**
Sharpe ratio = (portfolio return − risk-free rate) ÷ standard deviation of returns.


## Sources

- [Corporate Finance Institute – financial ratios](https://corporatefinanceinstitute.com/)