ES EN FR PT DE IT

Sharpe Ratio Calculator

Calculate the Sharpe ratio of an investment.

The Sharpe Ratio Calculator is a free financial calculator. Calculate the Sharpe ratio of an investment. Plan your finances accurately and make better economic decisions.
Inputs
Result
Enter values and press Calculate

What Is the Sharpe Ratio?

The Sharpe Ratio measures how much return an investment earns per unit of risk taken. Developed by Nobel laureate William Sharpe in 1966, it is the most widely used metric for comparing risk-adjusted performance across funds, portfolios, and asset classes. A higher Sharpe Ratio means better return per unit of volatility — you are being compensated more for the risk you take.

The ratio subtracts the risk-free rate (what you would earn with zero risk, like a Treasury bond) from the portfolio return, then divides by the standard deviation of returns. This penalises both low returns and high volatility simultaneously, making meaningful comparisons possible even between very different investments.

The Formula

Sharpe Ratio = (Return % − Risk-Free %) ÷ Standard Deviation %

  • Return %: The annualised return of your portfolio or investment
  • Risk-Free %: Return on a zero-risk asset — typically the 3-month Treasury bill yield
  • Standard Deviation %: Annualised volatility of the portfolio's returns

Worked Example

Comparing Two Funds

Fund A returned 12% with standard deviation 15%. Fund B returned 9% with standard deviation 6%. Risk-free rate: 4%.

Fund A Sharpe = (12 − 4) ÷ 15 = 0.53

Fund B Sharpe = (9 − 4) ÷ 6 = 0.83

Conclusion: Fund B wins on risk-adjusted terms despite the lower raw return. You earn 0.83 units of excess return per unit of risk vs. 0.53 for Fund A.

How to Interpret Your Result

  • Below 0: The investment returned less than the risk-free rate — risk was unrewarded
  • 0 to 1.0: Acceptable — typical for diversified equity funds
  • 1.0 to 2.0: Good risk-adjusted performance
  • 2.0 to 3.0: Very good — rarely sustained over long periods
  • Above 3.0: Exceptional, or potentially a sign of data manipulation or look-back bias

Common Mistakes

  • Annualising inconsistently: If returns are monthly, use monthly standard deviation — not annual. To annualise a monthly Sharpe, multiply by √12. Mixing time periods produces meaningless results.
  • Using 0% as the risk-free rate: This made sense during near-zero interest rates but significantly overstates performance in today's 4–5% rate environment. Always use the current T-bill yield.
  • Ignoring return distribution: Sharpe assumes normal distribution. Strategies with rare catastrophic losses (like selling options) can show great Sharpe Ratios until they blow up. Use the Sortino Ratio for asymmetric strategies.

Pro Tip

Use the current 3-month Treasury yield as your risk-free rate for USD portfolios. Update it quarterly — in a rising rate environment a fixed risk-free rate will systematically overstate your Sharpe Ratio, making mediocre performance look better than it is.

Frequently Asked Questions

Sharpe uses total standard deviation (upside + downside volatility). Sortino uses only downside deviation — volatility below a minimum acceptable return. Sortino is fairer because upside volatility is not actually a risk. It is especially important for strategies with asymmetric return distributions, such as options selling or trend-following.

Yes. A negative ratio means the portfolio underperformed the risk-free rate. A higher (less negative) ratio is still better, but interpretation becomes less useful — you are measuring which investment lost less relative to a zero-risk benchmark.

For a broadly diversified equity portfolio over a long period, a Sharpe Ratio of 0.5–1.0 is considered good. The S&P 500 has historically averaged around 0.5–0.7 over multi-decade periods. Hedge funds and active strategies typically target 1.0+, though few sustain this consistently after fees.

Written and reviewed by the CalcToWork editorial team. Last updated: 2026-04-29.

Related tools
Price-to-Earnings Ratio Calculator WACC Calculator

Frequently Asked Questions

Sharpe uses total standard deviation (upside + downside volatility). Sortino uses only downside deviation — volatility below a minimum acceptable return. Sortino is fairer because upside volatility is not actually a risk. It is especially important for strategies with asymmetric return distributions, such as options selling or trend-following.
Yes. A negative ratio means the portfolio underperformed the risk-free rate. A higher (less negative) ratio is still better, but interpretation becomes less useful — you are measuring which investment lost less relative to a zero-risk benchmark.
For a broadly diversified equity portfolio over a long period, a Sharpe Ratio of 0.5–1.0 is considered good. The S&P 500 has historically averaged around 0.5–0.7 over multi-decade periods. Hedge funds and active strategies typically target 1.0+, though few sustain this consistently after fees.