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Sharpe Ratio Calculator

Measure risk-adjusted return with the Sharpe ratio.

How it is calculated

The Sharpe ratio divides the return above the risk-free rate by the volatility: S = (Rp − Rf) ÷ σ. All three inputs are percentages: Rp the portfolio return, Rf the risk-free rate (0 if left empty) and σ the standard deviation of returns. Use the same period for all three, typically annual. The standard deviation must be above zero. The tool also shows the excess return Rp − Rf as a percentage. The ratio has no unit; a higher value means more return per unit of risk taken.

Worked example

A portfolio returned 12% in a year, the risk-free rate was 3% and the standard deviation was 15%. Excess return: 12 − 3 = 9.00%. Sharpe ratio: 9 ÷ 15 = 0.60. Each percentage point of volatility earned 0.6 points of return above the risk-free rate.

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Common mistakes

  • Mixing periods, such as a monthly return with an annual standard deviation. All three numbers must cover the same period, or the ratio is meaningless.
  • Leaving the risk-free rate at zero while comparing funds across years with different rates. This inflates the ratio when rates are high.
  • Entering the variance or the maximum drawdown in the standard deviation field. Only the standard deviation of returns belongs there.
  • Comparing Sharpe ratios of assets with very different return patterns. The measure treats upside and downside swings alike and works best for roughly normal returns.

Sources

About this calculator

This calculator finds the Sharpe ratio, developed by Nobel laureate William Sharpe: (Rp − Rf) / σp, where Rp is the portfolio's return, Rf is the risk-free rate (typically a Treasury bill yield), and σp is the standard deviation of the portfolio's excess returns. It expresses how much extra return an investment delivers per unit of volatility risk taken.

Portfolio managers, financial analysts, and individual investors use it to compare investments or funds on a risk-adjusted basis — a higher Sharpe ratio means better returns for the risk taken, which is useful when a high-return fund is also high-volatility.

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Comments (1)

  • Editorial team

    If you only have monthly figures, work out the ratio from monthly return, monthly risk-free rate and monthly standard deviation, then multiply by the square root of 12, about 3.46, to compare it with annual numbers. This assumes month-to-month returns are roughly independent, which is not always true. A single ratio from a short track record is a weak basis for ranking funds. What period of data are you using?

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