— Stock Market
Sharpe Ratio Calculator
Calculate Sharpe ratio to compare risk-adjusted returns. Enter return, risk-free rate, and volatility, compare multiple portfolios, or paste return data to compute mean return, volatility, Sharpe ratio, and Sortino ratio.
Sharpe ratio
0.6
- Excess return
- 9%
Try: 12% return, 3% rf, 15% vol, With Sortino & Treynor, Compare three portfolios, From a monthly returns series
— Sharpe ratio by portfolio
Download— How it works
Sharpe = (return − risk-free rate) ÷ standard deviation. Annualized Sharpe = Sharpe × √(periods per year). Sortino swaps the standard deviation for the downside deviation; Treynor swaps in beta instead of standard deviation.
Return per unit of risk
The Sharpe ratio answers a question raw return can’t: was the return worth the risk? It takes the return above the risk-free rate — the excess return, your reward for taking risk at all — and divides it by the standard deviation of returns, the size of the ups and downs. A fund returning 12% with wild swings can have a worse Sharpe than one returning 9% smoothly. As a rough guide, above 1 is good, above 2 very good, and above 3 excellent; below zero means you’d have done better in cash.
Worked example — 12% return, 3% risk-free rate, 15% volatility: Excess return = 12% − 3% = 9%. Sharpe = 9 ÷ 15 = 0.6. A second fund returning 10% with just 8% volatility scores 0.875 — better risk-adjusted, despite the lower headline return.
Sortino and Treynor
The Sharpe ratio penalizes all volatility, including the upside kind you actually want. The Sortino ratio fixes this by dividing only by downside deviation — the volatility of losses — so a fund that’s volatile only on the way up isn’t punished. The Treynor ratio takes a different angle: it divides excess return by beta, measuring reward per unit of market risk rather than total risk, which suits well-diversified portfolios where stock-specific risk has been diversified away. Enter a beta or downside deviation to see them alongside the Sharpe.
Annualizing and comparing
Sharpe ratios are only comparable on the same time basis. A Sharpe computed from monthly returns is annualized by multiplying by the square root of 12 (√52 for weekly, √252 for daily) — set the frequency and the calculator does it. Use compare mode to rank several portfolios at once, or paste a returns series and it computes the mean, volatility and ratios for you. Remember the ratio rests on standard deviation as the measure of risk, which assumes returns are roughly normal — fat tails and crashes aren’t fully captured — so it’s a comparison tool, not the whole story. Not investment advice.
— Reader questions
How do I calculate the Sharpe ratio?
Subtract the risk-free rate from the return, then divide by the standard deviation of returns. A 12% return, 3% risk-free rate and 15% volatility gives (12 − 3) ÷ 15 = 0.6.
What is a good Sharpe ratio?
Higher is better. As a rough guide, above 1 is good, above 2 is very good, and above 3 is excellent. A ratio below zero means the investment returned less than the risk-free rate — you’d have done better in cash.
What’s the difference between Sharpe and Sortino?
Sharpe divides by total volatility (all ups and downs); Sortino divides only by downside deviation (the volatility of losses). Sortino is kinder to investments that are volatile mainly on the upside, which many investors prefer.
What is the Treynor ratio?
Excess return divided by beta instead of standard deviation. It measures reward per unit of market (systematic) risk rather than total risk, and suits diversified portfolios where stock-specific risk has been diversified away.
How do I annualize a Sharpe ratio?
Multiply the periodic Sharpe by the square root of the number of periods per year — √12 for monthly returns, √52 weekly, √252 daily. Set the frequency in the calculator and it’s done automatically.