Sharpe Ratio Calculator
Calculate risk-adjusted returns using the Sharpe ratio for portfolio performance
About this calculator
The Sharpe Ratio Calculator helps investors evaluate portfolio performance by measuring risk-adjusted returns. This essential financial metric compares the excess return of an investment relative to its volatility, allowing you to determine if higher returns justify the additional risk taken. By calculating the Sharpe ratio, investors can compare different investments or portfolios on an equal footing, making more informed decisions about asset allocation and portfolio optimization strategies.
How to use
Enter your portfolio's annual return rate, the risk-free rate (typically government bond yield), and the portfolio's standard deviation (volatility). The calculator will compute the Sharpe ratio by subtracting the risk-free rate from your return and dividing by the standard deviation. Higher ratios indicate better risk-adjusted performance.
Frequently asked questions
What is a good Sharpe ratio?
Generally, a Sharpe ratio above 1.0 is considered good, above 2.0 is very good, and above 3.0 is excellent for risk-adjusted returns.
What's the risk-free rate?
The risk-free rate is typically the yield on government bonds, such as 10-year Treasury bonds, representing returns with minimal risk.
Can Sharpe ratio be negative?
Yes, when portfolio returns are below the risk-free rate, the Sharpe ratio becomes negative, indicating poor risk-adjusted performance.