Sharpe Ratio Calculator
Measure how much return you earn for each unit of risk, using the Sharpe ratio.
Sharpe Ratio Calculator
A portfolio returning 12% with a 4.5% risk-free rate and a 15% standard deviation has a Sharpe ratio of 0.5. Its excess return is 7.5%, which the calculator rates as Acceptable.
How to use this sharpe ratio calculator
- Enter the portfolio’s return for the period.
- Enter the risk-free rate, such as a Treasury bill yield.
- Enter the portfolio’s standard deviation.
- Read the Sharpe ratio, excess return and rating.
The math behind the result
Sharpe ratio = (Portfolio return − Risk-free rate) ÷ Standard deviation of the portfolio’s returns.
Worked example
12% return, 4.5% risk-free, 15% standard deviation:
- Excess return: 7.5%
- Sharpe ratio: 7.5 ÷ 15 = 0.500
Rating scale used here: below 0 poor, under 0.5 below average, 0.5 to 1 acceptable, 1 to 2 good, above 2 excellent.
How to read it
A higher Sharpe ratio means more return per unit of risk. Comparing the Sharpe ratios of two funds with similar goals shows which delivered returns more efficiently.
Where the inputs come from
Use returns and standard deviation over the same period (for example three years annualized), and a risk-free rate such as the yield on short-term Treasury bills.
Limitations
Standard deviation treats upside and downside swings alike and assumes returns follow a bell curve. Past ratios do not predict the future. The rating bands are rules of thumb, not official standards.
Key terms
- Risk-free rate
- The return on a safe investment such as a Treasury bill.
- Standard deviation
- A measure of how much returns vary around their average.
- Excess return
- Return above the risk-free rate.
Frequently asked questions
What is a good Sharpe ratio?
Many investors treat 1 or above as good and 2 or above as very good, but compare it with similar funds over the same period.
How do you calculate the Sharpe ratio?
Subtract the risk-free rate from the portfolio return and divide by the portfolio’s standard deviation.
Can the Sharpe ratio be negative?
Yes, when the portfolio earns less than the risk-free rate.
Is a higher Sharpe ratio always better?
Usually, but only if the inputs are measured over the same period and the return history is long enough to be meaningful.
Sources and further reading
Related calculators
Related guides
Figures in the examples are illustrative and use the inputs shown. Market rates and program rules change; confirm current terms with your lender or the linked official sources before making a decision.
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Compound interest is the most powerful force in investing -- starting early and staying consistent consistently outperforms timing the market. Understanding investment return metrics like CAGR, IRR, and Sharpe ratio helps you evaluate opportunities objectively. Use our free calculators to model different scenarios before committing capital.
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Built by Abdul Rahman · Last reviewed: · Report an error
Disclaimer: This calculator provides estimates for educational purposes only and is not financial, tax, or legal advice. Results depend on the figures you enter and on simplified assumptions; actual rates, taxes, and outcomes will differ. Consult a qualified professional before making financial decisions.