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Sharpe Ratio Calculator

Calculate the Sharpe ratio from annual return, risk-free rate and volatility — or annualise it directly from a series of daily, weekly or monthly returns.

Risk-Adjusted RatiosIntermediate
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Quick examples
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% / yr
% / yr
% / yr
Results
Sharpe ratio1.25(12% − 2%) ÷ 8%
Excess return+10%
Ratinggood
Return needed for Sharpe 110%at this volatility
Each 1% of volatility earned 1.25% of return above the risk-free rate. A Sharpe above 1 is generally considered good; above 2 is rare over long periods.
Capital allocation line (same Sharpe at any risk level)

Not financial advice. Results are estimates based on the values you enter and simplified assumptions; real trades are affected by fees, slippage, gaps and other factors. Trading involves substantial risk of loss. Read the full disclaimer.

How to calculate the Sharpe ratio

Sharpe = (R_p − R_f) ÷ σ_p From a return series: Sharpe_period = mean(rᵢ − r_f) ÷ stdev(rᵢ − r_f) Sharpe_annual = Sharpe_period × √(periods per year)

Worked example

  1. Portfolio A returns 12% with 8% volatility; the risk-free rate is 2%.
  2. Sharpe A = (12 − 2) ÷ 8 = 1.25.
  3. Portfolio B returns only 10% but with 5% volatility: (10 − 2) ÷ 5 = 1.60 — the better risk-adjusted result despite the lower return.

How to interpret the Sharpe ratio

Rough rules of thumb for annualised Sharpe ratios: below 0.5 weak, 0.5–1 acceptable, 1–2 good, above 2 excellent and rare over long periods.

Because volatility counts upside and downside equally, strategies with large positive outliers are penalised. The Sortino ratio only counts downside volatility and is a useful complement.

Limitations and common mistakes

  • Annualise correctly: multiply by √12 for monthly data and √252 for daily data, never by 12 or 252.
  • Short track records produce unstable Sharpe ratios; a year of monthly data is only 12 observations.
  • Strategies that sell options or martingale can show high Sharpe ratios right up until a large loss.
Risk-Adjusted Ratios

Sortino Ratio Calculator

Risk-adjusted return that only penalises downside volatility below your target return.

Monthly returns · target 0% → Sortino vs Sharpe
Risk-Adjusted Ratios

Treynor Ratio Calculator

Excess return per unit of market risk (beta) for diversified portfolios.

12% · Rf 2% · β 1.2 → 0.0833
Risk-Adjusted Ratios

Information Ratio Calculator

Measure how consistently a portfolio beats its benchmark relative to tracking error.

Portfolio vs benchmark → IR & tracking error

Sharpe Ratio calculator FAQ

What is a good Sharpe ratio?

Above 1 is generally good and above 2 very good. Broad stock indices have historically had long-run Sharpe ratios around 0.3–0.6.

What risk-free rate should I use?

A short-term government bill yield in the same currency, over the same period as the returns.

Can the Sharpe ratio be negative?

Yes — when the portfolio returned less than the risk-free rate.