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
| Field | What to enter |
|---|---|
| Portfolio return | In % |
| Risk-free rate | In % |
| Standard deviation of returns | In % |
| Second portfolio – return | In % |
| Second portfolio – standard deviation | In % |
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 ratio |
|---|---|
| 5.5 | 0.1 |
| 8.25 | 0.283 |
| 11 | 0.467 |
| 13.75 | 0.65 |
| 16.5 | 0.833 |
| 22 | 1.2 |
Formula
Sharpe ratio = (portfolio return − risk-free rate) ÷ standard deviation of returnsWorked 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.
Frequently asked questions
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.