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Calculation Machine

Sharpe Ratio Calculator

Risk-adjusted return of an investment or portfolio.

Reviewed by the Calculation Machine team · How we check our maths

Your values

ⓘ Live results

Results
Sharpe ratio
0.53
Excess return over risk-free
8%
Rating
Subpar

Quick answer

A higher Sharpe ratio means better return per unit of risk taken; ratios above 1 are generally considered good, above 2 very good.

The formula

Sharpe = (portfolio return - risk-free rate) / standard deviation

Worked example

Worked example

Using the values the calculator loads with.

Inputs

  • Portfolio annual return12 %
  • Risk-free rate4 %
  • Portfolio standard deviation15 %

Result

  • Sharpe ratio0.53
  • Excess return over risk-free8%
  • RatingSubpar

How to use the Sharpe Ratio Calculator

  1. 1Enter the portfolio's average annual return and its standard deviation (volatility) over the same period.
  2. 2Enter the risk-free rate (e.g., current T-bill yield).
  3. 3A higher Sharpe ratio means more return earned per unit of risk taken.

Frequently asked questions

What counts as a good Sharpe ratio?

Above 1 is generally considered good, above 2 is very good, and below 0 means the investment underperformed the risk-free rate.

What are Sharpe ratio's limitations?

It assumes returns are normally distributed and penalizes upside volatility the same as downside, unlike the Sortino ratio.

About this calculator

Return per unit of risk

The Sharpe ratio is the extra return an investment earned over a risk-free rate, divided by its volatility (standard deviation). It answers a simple question: was the return worth the ups and downs?

A ratio of 1 means one unit of excess return per unit of volatility. Compare ratios over the same time period and with the same risk-free rate.

Example

A fund returned 10% a year with 15% volatility while Treasury bills paid 4%. Its Sharpe ratio is (10 − 4) ÷ 15 = 0.40.

Interpreting it

  • Above 1 is generally good; above 2 is rare over long periods.
  • Short periods can give misleadingly high ratios.
  • Sharpe treats upside and downside volatility the same; Sortino focuses on downside.

Sources

More questions

What risk-free rate should I use?

Usually the yield on short-term government bills for the same period.

Can the Sharpe ratio be negative?

Yes, when the return is below the risk-free rate.