Sharpe ratio calculator
Measure how much return a portfolio earns per unit of risk taken, so you can compare strategies on quality rather than raw performance.
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Sharpe ratio
What it measures
Measures risk-adjusted performance. It shows whether high returns came from sound investing or simply from taking on a lot of risk.
When to use it
Use it to compare two funds. Fund A returned 15% with high volatility; fund B returned 12% with very low volatility. The Sharpe ratio shows which earned more return for each unit of risk.
Watch out for
It assumes returns follow a normal distribution (a bell curve), which often does not hold during market crashes.
Sharpe ratio
Return earned for each unit of risk taken.
Low return for the risk taken.Weak: below 1.0
How it works
Sharpe = (Portfolio Return − Risk-Free Rate) / Volatility (standard deviation)Raw returns hide how bumpy the ride was. The Sharpe ratio first subtracts the risk-free rate (the return available for taking no risk at all) and then divides the excess by volatility. The result reads as return earned per unit of risk: a portfolio that made 9% smoothly beats one that made 11% with twice the swings, and Sharpe is the number that says so. It is the lingua franca for comparing funds, strategies, and asset allocations.
Worked example
A portfolio returning 11% while government bills yield 4%, with 14% volatility, scores (11 − 4) / 14 = 0.50, respectable for a long-only equity strategy. A second portfolio returning 9% with only 6% volatility scores 0.83 and is the better risk-adjusted performer despite the lower headline. Leverage the second to equal risk and it would out-earn the first.
Common questions
What is a good Sharpe ratio?
Broad equity markets have historically delivered roughly 0.3-0.5 over long periods. Above 1.0 is very good; above 2.0 is exceptional and rare outside short windows or strategies with hidden tail risk. Treat advertised Sharpes above 2 with suspicion.
What risk-free rate should I use?
The yield on short-term government debt in your currency over the same period as your returns, e.g. 3-month Treasury bills or their eurozone equivalent. Using zero inflates the ratio, which is a common way performance gets oversold.
What are the Sharpe ratio's blind spots?
Volatility punishes upside and downside equally, and returns are assumed roughly bell-curved. Strategies that earn steadily and lose catastrophically (selling options, some credit) can show beautiful Sharpes right up until they don't. Check drawdowns alongside it.
Last reviewed July 2026