Sharpe Ratio Calculator
Measure risk-adjusted return of an investment.
Portfolio volatility
Results update as you type.
How it works
The Sharpe ratio measures how much return an investment earns for the risk it takes, letting you compare investments on a risk-adjusted basis, and this calculator computes it. You enter the portfolio's return, the risk-free rate, and the portfolio's standard deviation, and it returns the Sharpe ratio. The calculation takes the excess return, the portfolio return minus the risk-free rate such as a government bond yield, and divides it by the standard deviation, which measures how much the returns fluctuate. The result tells you how many units of return you get per unit of risk. A higher Sharpe ratio is better: it means the investment delivers more reward for the volatility endured. As a rough guide, a ratio below 1 is considered suboptimal, around 1 is acceptable, 2 is very good, and 3 or above is excellent, though these benchmarks vary by context. The Sharpe ratio is invaluable because a high raw return is not impressive if it came with wild swings; two portfolios with the same return can differ greatly in risk, and the Sharpe ratio reveals which achieved it more efficiently. Investors and fund managers use it to compare funds, strategies, and portfolios and to judge whether extra return justifies extra risk. Be sure the return, risk-free rate, and standard deviation cover the same period. Enter the three values to compute the Sharpe ratio.
Sharpe = (return − risk-free rate) / standard deviation
The Sharpe ratio subtracts the risk-free rate from the portfolio's return to get the excess return, then divides by the portfolio's standard deviation, its volatility. It measures how much return you earn for each unit of risk taken. A higher ratio means better compensation for risk.
Source:Portfolio theory
We review all our tools from time to time to ensure accuracy.
Worked example
How to use this calculator
- 1
Enter your values
Enter portfolio return, risk-free rate and standard deviation.
- 2
Adjust the options
Fine-tune any options to match your situation.
- 3
Read your result
Sharpe ratio updates instantly as you type — no button to press.
Frequently asked questions
What is the Sharpe ratio?
The Sharpe ratio measures the risk-adjusted return of an investment, showing how much excess return it earns per unit of risk. It equals the portfolio return minus the risk-free rate, divided by the portfolio's standard deviation. A higher ratio means the investment compensates you better for the volatility you accept.
How do you calculate the Sharpe ratio?
Subtract the risk-free rate from the portfolio's return to get the excess return, then divide by the portfolio's standard deviation. For a 12 percent return, a 2 percent risk-free rate, and 10 percent volatility, the Sharpe ratio is 1.0. The calculator does this from your three inputs.
What is a good Sharpe ratio?
As a general guide, a Sharpe ratio below 1 is considered subpar, around 1 is acceptable, 2 is very good, and 3 or higher is excellent. These are rough benchmarks that vary by asset class and market conditions. A higher ratio always indicates better return for the risk taken, all else equal.
Why is risk-adjusted return important?
A high return alone can be misleading if it came with extreme volatility, since large swings risk deep losses and are hard to stomach. Risk-adjusted measures like the Sharpe ratio reveal how efficiently a portfolio turns risk into return, letting you compare investments fairly and prefer those that achieve returns with less turbulence.
What is the risk-free rate?
The risk-free rate is the return you could earn with essentially no risk, typically approximated by the yield on short-term government securities like Treasury bills. It represents the baseline return for taking no risk, so subtracting it isolates the excess return your investment earned specifically for taking on risk.