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Sharpe Ratio Calculator

Calculate a portfolio's Sharpe ratio, (Rp − Rf) ÷ σp, the standard measure of return earned per unit of risk taken above a risk-free rate.

Sharpe ratio
0.6
Excess return over the risk-free rate
9%

Where this falls

0.6 falls in the "Sub-optimal — return doesn't yet reward the risk well" range.

How it works

The Sharpe ratio, developed by Nobel laureate William Sharpe, measures how much return a portfolio earned above a risk-free benchmark for every unit of volatility it took on: Sharpe = (Rp − Rf) ÷ σp, where Rp is the portfolio's return, Rf is the risk-free rate over the same period, and σp is the standard deviation of the portfolio's returns over that period. Two portfolios can post the same raw return, but the one that got there with smoother, less volatile results has the higher — better — Sharpe ratio.

All three figures are entered directly as whatever return, rate, and volatility you already have for a specific period (this calculator never estimates or fetches a market's actual risk-free rate or a portfolio's actual historical volatility); the ratio itself comes out the same whether you enter them as percentages or as the equivalent decimals, since both the numerator and denominator scale by the same factor and it cancels.

A negative ratio means the portfolio didn't even keep pace with the risk-free rate, so it took on volatility for no net reward over simply holding the risk-free asset instead.

FAQ

What counts as a 'good' Sharpe ratio?

There's no single universal cutoff, but a commonly cited rule of thumb among investors treats below 1 as sub-optimal, 1-2 as good, 2-3 as very good, and above 3 as excellent — though what's achievable varies a lot by asset class and time period, so the most meaningful comparison is usually this same ratio computed the same way for a benchmark or alternative portfolio over the identical period, not an absolute threshold.

Why use standard deviation instead of just comparing total returns?

Because a higher return achieved by taking on much larger swings isn't obviously a better outcome than a slightly lower return achieved smoothly — the Sharpe ratio normalizes for that by dividing out the volatility, which is why it's used to compare portfolios or strategies with very different risk profiles on a level footing, rather than just ranking them by raw return alone.

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