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Sharpe Ratio Calculator

Calculate the Sharpe Ratio for investments or portfolios using expected return, risk-free rate, and standard deviation to assess risk-adjusted performance.

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What is the Sharpe Ratio Calculator?

The Sharpe Ratio Calculator measures the risk-adjusted return of an investment portfolio. Developed by Nobel laureate William F. Sharpe, it evaluates how much excess return an investor receives for taking on extra volatility (risk).

Sharpe Ratio Formula

$$\text{Sharpe Ratio} = \frac{R_p - R_f}{\sigma_p}$$

Where:

  • \(R_p\): Expected Return of the Portfolio (%)
  • \(R_f\): Risk-Free Rate of Return (e.g. US Treasury Bill rate %)
  • \(\sigma_p\): Standard Deviation / Volatility of the Portfolio (%)

Interpreting Sharpe Ratio Ratings

  • Below 1.0: Sub-optimal risk-adjusted return.
  • 1.0 to 1.99: Good risk-adjusted performance.
  • 2.0 to 2.99: Very good risk-adjusted performance.
  • 3.0 or higher: Excellent risk-adjusted performance.

Frequently Asked Questions

Why is the Sharpe Ratio important?

It allows investors to compare portfolios with different return and volatility profiles to see which provides better returns per unit of risk.

What is a good risk-free rate to use?

Typically, the yield on short-term US Treasury Bills (such as 3-month T-bills) is used as the risk-free rate proxy.

What is the difference between Sharpe Ratio and Sortino Ratio?

Sharpe Ratio considers both upside and downside volatility, while Sortino Ratio only punishes downside volatility.

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