Sharpe Ratio Calculator
Measure how much return a portfolio earns for the risk it takes. Enter the portfolio return, the risk free rate and the standard deviation to get the Sharpe ratio.
How to calculate the Sharpe ratio
- Enter the portfolio's annual return as a percent.
- Enter the risk free rate, such as a short-term treasury yield.
- Enter the standard deviation of returns to get the Sharpe ratio.
Examples
12% return, 2% risk free, 15% standard deviation
return 12%, risk free 2%, standard deviation 15%
Sharpe ratio 0.67
Frequently asked questions
What is the Sharpe ratio?
The Sharpe ratio measures the return a portfolio earns above the risk free rate per unit of volatility. It equals excess return divided by standard deviation and lets you compare investments on a risk-adjusted basis.
What is the Sharpe ratio formula?
Sharpe ratio = (portfolio return minus risk free rate) divided by the standard deviation of returns. The numerator is the excess return and the denominator is the volatility used as a proxy for risk.
What is a good Sharpe ratio?
As a rough guide, a Sharpe ratio above 1 is often seen as good, above 2 as very good and above 3 as excellent. A ratio below 1 suggests the return may not justify the volatility taken on.
What risk free rate should I use?
Investors commonly use the yield on a short-term government security, such as a treasury bill, that matches the holding period. The key is to be consistent so comparisons across portfolios are fair.
What are the limits of the Sharpe ratio?
The Sharpe ratio treats all volatility as risk, including upside swings, and assumes returns are roughly normal. For strategies with skewed or fat-tailed returns, measures like the Sortino ratio can be more informative.
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