Sharpe Ratio Calculator

The Sharpe Ratio measures the risk-adjusted return of an investment. It helps investors understand the return of an investment compared to its risk. A higher Sharpe Ratio indicates better risk-adjusted performance.

Input Parameters

Calculation Results

Sharpe Ratio

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Where:
Sharpe Ratio = (Expected Return - Risk-Free Rate) / Standard Deviation
A ratio > 1 is generally considered good, > 2 is very good

Sharpe Ratio Calculator Usage Guide

Learn how to use the Sharpe Ratio Calculator and understand its implications for investment decisions

What is the Sharpe Ratio?

The Sharpe Ratio is a measure of risk-adjusted return, developed by William F. Sharpe. It indicates how much excess return you're receiving for the extra volatility that you're taking on compared to risk-free rate. It helps investors understand the return of an investment compared to its risk.

How to Use This Calculator

  1. Enter your Expected Annual Return (the average return you expect from the investment over a year)
  2. Enter the Risk-Free Rate (the return you could expect from an investment with zero risk, like a government bond)
  3. Enter the Annualized Standard Deviation (the standard deviation of the investment's returns over a year)
  4. Click Calculate to see the Sharpe Ratio

Interpreting the Results

  • A Sharpe Ratio greater than 1 is generally considered good
  • A Sharpe Ratio greater than 2 is considered very good
  • A Sharpe Ratio less than 1 may indicate that the investment is not performing well compared to its risk
  • A higher Sharpe Ratio indicates better risk-adjusted performance

Important Considerations

The Sharpe Ratio assumes that returns are normally distributed, which may not always be the case in real markets. Also, it doesn't account for the size of the investment, so a portfolio with a high Sharpe Ratio might be too small to be meaningful in absolute terms.