Sharpe Ratio Calculator

Calculate risk-adjusted return from portfolio return, risk-free rate, and standard deviation.
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Sharpe Ratio

0.50

Rating

Adequate

Details

Excess Return7.50%
Volatility15.00%
Sharpe Ratio0.500

Use the Sharpe Ratio Calculator above to calculate your results. Enter your values and see instant results — all calculations run in your browser.

Disclaimer: This calculator is for informational purposes only and does not constitute tax, financial, or legal advice. Results are estimates based on the information you provide and current rates. Always consult a qualified tax professional or financial advisor for advice specific to your situation.

How It Works

The Sharpe Ratio Calculator determines the risk-adjusted return of your investment portfolio. This is crucial because it helps you understand if the returns you're generating are adequate compensation for the level of risk you're taking, especially compared to a risk-free alternative. For instance, knowing if your portfolio's 2026 performance justifies its volatility against the projected 4.5% US Treasury bill rate for 2026 is vital for informed decision-making.

The Sharpe Ratio is calculated by subtracting the risk-free rate from the portfolio's return, and then dividing that result by the portfolio's standard deviation. Mathematically, it's expressed as (Rp - Rf) / σp, where Rp is the portfolio return, Rf is the risk-free rate, and σp is the standard deviation of the portfolio's returns. A higher Sharpe Ratio indicates a better risk-adjusted return.

A common mistake is using an inappropriate risk-free rate; ensure it reflects current market conditions and the investment horizon. Another pitfall is using a standard deviation calculated over too short a period, which might not accurately represent the portfolio's long-term volatility. Remember, a high Sharpe Ratio doesn't guarantee future performance, but it provides a valuable historical perspective on risk efficiency.

Example: Evaluating a Growth Portfolio in 2026

  1. 1 Imagine your growth portfolio generated a 12% return in 2026, with a standard deviation of 15%. The prevailing risk-free rate (e.g., US Treasury bill rate) for 2026 is 4.5%.
  2. 2 First, calculate the excess return: 12% - 4.5% = 7.5%. Then, divide the excess return by the standard deviation: 7.5% / 15% = 0.5.
  3. 3 The Sharpe Ratio for your growth portfolio in 2026 is 0.5.
  4. 4 A Sharpe Ratio of 0.5 suggests that for every unit of risk taken, your portfolio generated 0.5 units of excess return above the risk-free rate. While not exceptionally high, it provides a benchmark for comparing against other investment options or the performance of other funds with similar risk profiles.

Source: SEC · Last updated: April 2026

Frequently Asked Questions

What is a good Sharpe ratio?
A Sharpe ratio above 1.0 is considered good, above 2.0 is very good, and above 3.0 is excellent. The S&P 500 has historically had a Sharpe ratio of about 0.5-0.7. A higher Sharpe ratio means better risk-adjusted returns.
How do I calculate the Sharpe ratio?
Sharpe Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation. For example, a portfolio returning 12% with a risk-free rate of 4% and standard deviation of 15% has a Sharpe ratio of (12-4)/15 = 0.53.
Why is the Sharpe ratio important?
The Sharpe ratio tells you how much excess return you earn per unit of risk. Two investments might both return 10%, but the one with lower volatility has a higher Sharpe ratio and is the better risk-adjusted choice. It helps compare investments with different risk levels on an equal footing.

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