Sharpe Ratio Calculator
Measure risk-adjusted returns using the Sharpe Ratio. Calculate for a single portfolio, compare up to 3 investments side by side, or benchmark your performance against the S&P 500 and other common indices.
Try another scenario
How to Use This Calculator
Tab "Calculate"
Enter your portfolio return (annualised), the risk-free rate (e.g. 3-month Treasury bill yield), and your portfolio's standard deviation (annualised volatility). The calculator returns the Sharpe Ratio and a plain-English rating from "bad" to "exceptional."
Tab "Compare Investments"
Enter up to 3 investments with their name, return, and standard deviation. All share the same risk-free rate. The calculator computes the Sharpe Ratio for each, ranks them, and highlights the winner — the one delivering the most return per unit of risk.
Tab "Benchmarks"
Enter your portfolio's numbers and see how your Sharpe Ratio compares to common benchmarks: S&P 500, US bonds, 60/40 portfolio, hedge funds, and global equities. The calculator identifies the closest benchmark and gives you a contextual insight.
The Formula
Sharpe Ratio = (Rp − Rf) / σp
Where:
Rp = annualised portfolio return
Rf = risk-free rate (e.g. Treasury bill yield)
σp = annualised standard deviation of portfolio returns
Rating scale:
< 0: Bad — negative risk-adjusted return
0 – 0.5: Low — barely compensating for risk
0.5 – 1.0: Adequate — acceptable risk-adjusted return
1.0 – 2.0: Good — solid risk-adjusted return
2.0 – 3.0: Excellent — strong risk-adjusted return
3.0+: Exceptional — rare, verify your inputs
The Sharpe Ratio was introduced by Nobel laureate William F. Sharpe in 1966. It remains the most widely used measure of risk-adjusted return in finance. All inputs should use annualised figures for consistency.
Worked Examples
Example 1 — Growth equity portfolio: 12% return, 15% volatility
An equity portfolio returned 12% annualised with a standard deviation of 15%. The current risk-free rate is 4.5%.
A Sharpe of 0.50 is in line with the S&P 500 historical average. This portfolio is earning risk-adjusted returns comparable to a passive index fund.
Example 2 — Comparing two funds
A growth fund returns 14% with 20% volatility. A balanced fund returns 9% with 12% volatility. Risk-free rate is 4.5% for both.
Despite the growth fund being more volatile, it delivers more return per unit of risk. The higher absolute return more than compensates for the higher volatility on a risk-adjusted basis.
Example 3 — Bond fund with low volatility
A bond fund returns 5.5% with only 4% volatility. Risk-free rate is 4.5%.
Despite low volatility, the tiny excess return over the risk-free rate results in a low Sharpe Ratio. The investor is barely being compensated for taking on any risk at all compared to simply holding Treasury bills.
Understanding the Sharpe Ratio
What It Measures
The Sharpe Ratio answers one question: how much extra return am I getting for each unit of risk I take? A portfolio that returns 15% with 30% volatility has the same Sharpe Ratio as one returning 7.5% with 15% volatility — both deliver 0.50 units of excess return per unit of risk.
Why Risk-Adjusted Returns Matter
Raw returns are misleading. A fund returning 20% sounds great until you learn its standard deviation is 40%. A more conservative fund returning 10% with 12% volatility is actually the better risk-adjusted performer. The Sharpe Ratio makes these comparisons possible by putting all investments on the same risk-adjusted scale.
Historical Benchmarks
Over long periods, the S&P 500 has delivered a Sharpe Ratio of roughly 0.4 to 0.5. US aggregate bonds typically come in at 0.2 to 0.3. A classic 60/40 portfolio often achieves 0.5 to 0.6 due to diversification benefits. Any strategy consistently above 1.0 is genuinely strong; above 2.0 warrants close scrutiny of the methodology.
Limitations
The Sharpe Ratio assumes returns are normally distributed. It penalises upside volatility the same as downside — a fund that occasionally spikes upward gets "punished" for that volatility. For strategies with asymmetric payoffs (options, venture capital, crypto), the Sortino Ratio (which only considers downside deviation) may be more appropriate. The Sharpe Ratio also says nothing about drawdowns, liquidity risk, or tail events.
Practical Tips
Use the same time period and frequency for all inputs. An annualised return compared against a monthly standard deviation produces meaningless results. Most financial data providers report annualised figures, which is what this calculator expects. When comparing funds, always use the same risk-free rate for all of them.