Sharpe ratio calculator
This Sharpe ratio calculator divides excess return by standard deviation. Example: a 9% return, 3% risk-free rate and 12% volatility give 0.50.
Example: Input values: Annual figures (p.a.) · Return p.a. (%) 9 · Risk-free rate p.a. (%) 3 · Volatility p.a. (%) 12 → Sharpe ratio: Sharpe ratio = 0.50. Source: Sharpe, W. F. (1994): The Sharpe Ratio, Journal of Portfolio Management 21(1), 49–58. Updated: .
How it is calculated
The Sharpe ratio measures how much excess return an investment earned per unit of volatility. William F. Sharpe introduced the measure in 1966 and set it out in its current form in 1994.
Formula
Sharpe ratio = (return − risk-free rate) ÷ standard deviation of returns. If you only have per-period figures, calculate per period and multiply by the square root of the periods per year (√12 for months, √52 for weeks, √252 for trading days). That assumes the period returns are independently distributed.
Example
Annual return 9%, risk-free rate 3%, volatility 12%: excess return 6%, Sharpe ratio = 6 ÷ 12 = 0.50. From monthly figures (mean 0.8%, risk-free 0.25%, standard deviation 3%) you get 0.55 ÷ 3 = 0.18 per month, 0.64 annualised.
- The measure only weighs return against dispersion, not tail risks at the edge of the distribution.
- Comparisons only work over the same period and with the same risk-free rate.
Frequently asked questions
How do you calculate the Sharpe ratio?
Return minus risk-free rate, divided by the standard deviation. In the example (9 − 3) ÷ 12 = 0.50.
How do you annualise a monthly Sharpe ratio?
Multiply the monthly value by √12. 0.18 becomes 0.64; use √52 for weeks and √252 for trading days.
What is a good Sharpe ratio?
As a rule of thumb, values above 1 are often called acceptable and above 2 high, but that depends on period, asset class and data. It is not a recommendation.
Sources and legal basis
- Sharpe, W. F. (1994): The Sharpe Ratio, Journal of Portfolio Management 21(1), 49–58
- Wikipedia – Sharpe ratio
- Bodie, Kane, Marcus: Investments – Risk-adjusted performance measures
As of: · Editorial policy
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