Sharpe Ratio Calculator
The Sharpe ratio measures the return of an investment relative to its risk. Developed by Nobel laureate William Sharpe in 1966, it tells you how much excess return (above the risk-free rate) you earn per unit of volatility. A higher Sharpe ratio means better risk-adjusted performance — the same return with less risk, or more return with the same risk.
Annual return %
e.g. T-bill rate
Annual volatility of returns
Sharpe Ratio
1.083
Excess Return (above risk-free)
13.00%
Risk-adjusted Interpretation
Good
How to use this calculator
- 1
Enter your portfolio return
Your annualized return as a percentage (e.g., 18 for 18%).
- 2
Enter the risk-free rate
The current annualized return on a risk-free investment, such as a 3-month US Treasury bill rate.
- 3
Enter the standard deviation
The annualized standard deviation of your portfolio returns — a measure of volatility.
- 4
Read the Sharpe ratio
Above 1.0 = good; above 2.0 = excellent; above 3.0 = exceptional.
Formula
Sharpe Ratio = (Portfolio Return − Risk-Free Rate) ÷ Standard Deviation
Where all inputs are annualized percentages.The formula takes your excess return (the amount you earn above the risk-free rate, which anyone can earn without risk) and divides by the standard deviation of your returns. A high return paired with low volatility gives the highest Sharpe ratio. Note: Sharpe ratio can be misleading when returns are not normally distributed — as is common in trading.
Worked Example
Annual portfolio return: 18% Risk-free rate (T-bill): 5% Standard deviation of returns: 12% Excess Return = 18% − 5% = 13% Sharpe Ratio = 13% ÷ 12% = 1.083 A Sharpe ratio of 1.08 is considered good. This means you earn about 1.08% of excess return for every 1% of volatility accepted. Most mutual funds have Sharpe ratios below 1.0 — consistently achieving above 1.5 is excellent for active traders.
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