Sharpe Ratio Calculator
Evaluate risk-adjusted investment returns and portfolio performance with comprehensive analysis
Calculate Sharpe Ratio
Expected annual return of the investment
Return on risk-free assets (e.g., Treasury bills)
Volatility measure of the investment returns
Sharpe Ratio Results
Performance Analysis
Sharpe Ratio Interpretation Guide
Example Calculation
Technology Stock Example
Asset Return: 15% (annual expected return)
Risk-Free Return: 3% (10-year Treasury bond)
Standard Deviation: 20% (historical volatility)
Risk Premium: 15% - 3% = 12%
Sharpe Ratio Calculation
Sharpe Ratio = (Ra - Rf) / σ
Sharpe Ratio = (15% - 3%) / 20%
Sharpe Ratio = 12% / 20% = 0.60
Result: Acceptable risk-adjusted performance
Investment Benchmarks
*Historical ranges vary by market conditions
Investment Analysis Tips
Compare Sharpe ratios across similar asset classes
Higher ratios indicate better risk-adjusted returns
Consider time periods and market conditions
Use alongside other financial metrics
Negative ratios suggest underperformance
Understanding the Sharpe Ratio
What is the Sharpe Ratio?
The Sharpe ratio measures the performance of an investment compared to a risk-free asset, after adjusting for its risk. It was developed by Nobel laureate William F. Sharpe and is one of the most widely used metrics for evaluating investment performance.
Why is it Important?
- •Compares investments with different risk levels
- •Helps identify risk-adjusted outperformers
- •Guides portfolio optimization decisions
- •Standard measure in investment analysis
Formula Explanation
Sharpe Ratio = (Ra - Rf) / σ
Risk Premium divided by Standard Deviation
- Ra: Return of the asset or portfolio
- Rf: Risk-free rate of return
- σ: Standard deviation of asset returns
- Risk Premium: Excess return over risk-free rate
Key Insight: The Sharpe ratio tells you how much additional return you receive for the extra volatility you endure for holding a riskier asset.
Limitations and Considerations
Limitations
- • Assumes normal distribution of returns
- • Uses historical data to predict future performance
- • May not capture tail risks adequately
- • Sensitive to time period selection
Best Practices
- • Use consistent time periods for comparison
- • Consider market conditions during measurement
- • Combine with other risk metrics
- • Regular recalculation as data updates