Sharpe Ratio Calculator
Calculate the Sharpe ratio to measure risk-adjusted returns of your investments. This essential metric helps investors evaluate portfolio performance by considering both returns and volatility.
Tool Features
- Calculate Sharpe ratio for any investment or portfolio
- Input expected return, risk-free rate, and standard deviation
- Get instant risk-adjusted performance assessment
- Interpret results with built-in performance guidelines
- Reset functionality for multiple calculations
User Guide
- Expected Return: Enter the annualized expected return of your investment or portfolio (in percentage)
- Risk-Free Rate: Input the current risk-free rate (typically government bond yield) in percentage
- Standard Deviation: Enter the annualized standard deviation of returns (volatility measure) in percentage
- Click "Calculate Sharpe Ratio" to get your result
- Use the reset button to clear all fields for new calculations
Formula
- Sharpe Ratio = (Expected Return - Risk-Free Rate) ÷ Standard Deviation
- Expected Return (Rp): Average return of the investment or portfolio
- Risk-Free Rate (Rf): Return of a risk-free investment (e.g., government bonds)
- Standard Deviation (σ): Measure of investment volatility or risk
How to Interpret Sharpe Ratio
The Sharpe ratio indicates how much excess return you receive for the extra volatility you endure.
• Sharpe Ratio > 1.0: Good risk-adjusted returns
• Sharpe Ratio 0.5 - 1.0: Acceptable performance
• Sharpe Ratio < 0.5: Poor risk-adjusted returns
• Sharpe Ratio < 0: Returns worse than risk-free rate
Higher Sharpe ratios indicate better risk-adjusted performance. Compare ratios across similar investments to identify the most efficient portfolio.
Typical Use Cases
- Evaluating mutual fund or ETF performance
- Comparing different investment portfolios
- Assessing hedge fund risk-adjusted returns
- Portfolio optimization and asset allocation
- Investment strategy performance analysis
- Risk management and due diligence
Job Roles That Benefit
- Portfolio Managers
- Financial Analysts
- Investment Advisors
- Risk Managers
- Quantitative Analysts
- Individual Investors
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Important Notes
- Annualized Figures: Use annualized expected returns, risk-free rates, and standard deviations for accurate comparisons.
- Risk-Free Rate: Typically use 3-month or 10-year government bond yields as the risk-free rate benchmark.
- Standard Deviation: Represents total risk (both systematic and unsystematic) of the investment.
- Limitations: Sharpe ratio assumes normal distribution of returns and doesn't account for skewness or kurtosis.
- Comparability: Best used to compare investments with similar risk profiles and time horizons.