Sharpe Ratio Calculator
Risk-adjusted return metric
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Sharpe Ratio Calculator turns the numbers behind risk-adjusted return metric into a result, step by step. Just enter Portfolio Return (%), Risk-Free Rate (%) and Portfolio Std Dev (%); Sharpe Ratio updates the result as you type. The answer from Sharpe Ratio arrives with its working attached. Anyone comparing options in Finance can use Sharpe Ratio to compare scenarios. No account is needed for Sharpe Ratio. The browser does the arithmetic. Looking for sharpe ratio calculator risk adjusted return or free online sharpe ratio calculator? Sharpe Ratio covers both. Sharpe Ratio shows formula, assumptions and result together. No sign-up or email — Sharpe Ratio answers as you type.
What the defaults give
A portfolio returning 12% with a 4% risk-free rate and 15% volatility gives a Sharpe ratio of 0.533.
The tool rates that “adequate”: the 8-point excess return is being earned with 15 points of risk.
What the Sharpe ratio measures
The Sharpe ratio is excess return per unit of volatility:
Sharpe = (Portfolio return − Risk-free rate) ÷ Standard deviation
A 12% return against a 4% risk-free rate with 15% volatility: (12 − 4) ÷ 15 = 0.533.
| Volatility | Sharpe at 12% return, 4% risk-free | Tool label |
|---|---|---|
| 10% | 0.800 | Adequate |
| 15% | 0.533 | Adequate |
| 20% | 0.400 | Poor |
| 25% | 0.320 | Poor |
Same return, more risk, lower score: that is the whole point of a risk-adjusted measure. A ratio of 1 or more is labelled good here, 0.5–1 adequate and below 0.5 poor. A negative ratio means the portfolio did worse than the risk-free asset. Related: investment return and cost of capital.
The formula
Sharpe = (portfolio return − risk-free rate) ÷ standard deviation
The numerator is the return you would not have got from a treasury bill. The denominator is how much the return bounced around to produce it. Dividing one by the other turns “12%” into “half a unit of excess return per unit of risk”, which is comparable across strategies that have nothing else in common.
Worked examples
12% return, 4% risk-free, 15% volatility → 0.533
6% return at the same risk → 0.133
24% return at the same risk → 1.333
Risk-free rate at 8% instead of 4% → 0.267
Volatility at 7.5% instead of 15% → 1.067
Volatility at 30% → 0.267
Halving the volatility doubles the ratio, and that is the point of the measure: a calmer route to the same return scores better. It also means the ratio can be improved by smoothing returns rather than by earning more, which is where many of its abuses begin.
The tool’s bands
1.0 and above is rated good, 0.5 to 1.0 adequate, and below 0.5 poor. Those are conventions rather than laws. A market-neutral fund and a long-only equity fund are judged on different scales, and 0.5 on a diversified portfolio is respectable while 0.5 on a leveraged strategy may not cover its financing.
What the ratio hides
Standard deviation treats upside and downside the same, so a strategy with occasional huge gains is penalised like one with occasional huge losses. It also assumes returns are roughly normal; funds that sell options, hold illiquid credit or mark assets infrequently look smoother than they are, and their Sharpe ratios flatter them.
Leverage does not change the ratio — borrowing to double both return and volatility leaves it untouched — which is why it should never be read alone. Pair it with maximum drawdown, the Sortino ratio for downside-only risk, and a look at how the returns were generated.
One practical detail: the inputs must cover the same period and the same frequency. A monthly return divided by an annualised volatility produces a number that is wrong by a factor of about 3.5.
Frequently Asked Questions
What is a good Sharpe ratio?
Above 1 is generally considered good, 0.5 to 1 adequate and below 0.5 poor. The bands are conventions; a defensive fund and an aggressive one are not judged the same way.
How is the ratio calculated?
Subtract the risk-free rate from the portfolio return and divide by the standard deviation. Here (12 − 4) ÷ 15 = 0.533.
Why does the risk-free rate matter so much?
It sets the hurdle. Moving it from 4% to 8% halves the excess return and takes the ratio from 0.533 to 0.267.
Does leverage change the Sharpe ratio?
No. Borrowing scales return and volatility together, so the ratio stays the same while the risk of ruin rises. Never read it without drawdown.
Should I use monthly or annual figures?
Either, as long as return and volatility use the same basis. Mixing a monthly return with annualised volatility makes the result wrong by roughly 3.5x.
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