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Sharpe Ratio Calculator

Measure how much excess return your portfolio earns per unit of volatility compared to a risk-free alternative.

Inputs

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Volatility of returns below the risk-free rate only

Results update as you type, and the address bar keeps your numbers so the link you share reopens this exact calculation.

Sharpe ratio

0.45

Poor

Detailed results
Sortino ratio0.67
Excess return over risk-free6.7%
Quality ratingPoor

What this result means

Sharpe ratio: 0.45.

A Sharpe ratio of 0.45 is considered poor. It represents 0.45 units of excess return per unit of volatility.

Sharpe Ratio at Different Return Levels

How the Sharpe ratio changes as portfolio return varies from -10% to +30%.

Sharpe Ratio at Different Return Levels. 21 rows, first 12 shown.
Portfolio Return (%)Sharpe RatioSortino Ratio
-10%-1.02-1.53
-8%-0.89-1.33
-6%-0.75-1.13
-4%-0.62-0.93
-2%-0.49-0.73
0%-0.35-0.53
2%-0.22-0.33
4%-0.09-0.13
6%0.050.07
8%0.180.27
10%0.310.47
12%0.450.67

How this is calculated

Sharpe = (Portfolio Return − Risk-Free Rate) / Standard Deviation. Sortino = Excess Return / Downside Deviation.

The Sharpe ratio, developed by Nobel laureate William Sharpe in 1966, measures risk-adjusted return: how much excess return a portfolio generates for each unit of volatility (standard deviation) it takes on.

The formula. Sharpe = (Portfolio Return − Risk-Free Rate) ÷ Standard Deviation. The risk-free rate is typically the 3-month US Treasury bill yield.

What the number means. - Below 1: Returns are not adequately compensating for risk. - 1–2: Acceptable risk-adjusted performance. - 2–3: Good — beating the market on a risk-adjusted basis. - Above 3: Excellent — typical of well-diversified strategies with low volatility.

Limitations of the Sharpe ratio. It penalizes upside volatility equally with downside volatility, which isn't economically meaningful — investors don't mind large positive returns. The ratio also assumes returns are normally distributed, which underestimates tail risk in strategies with fat tails or options-based payoffs.

The Sortino ratio. This variant replaces total standard deviation with downside deviation (volatility of negative returns only). A higher Sortino ratio relative to Sharpe suggests the portfolio's volatility is concentrated in positive returns — which is preferable.

Using Sharpe for comparison. Two portfolios with the same return but different volatilities will have different Sharpe ratios. The higher-Sharpe portfolio achieved the same return with less risk.

Assumptions

  • Returns and standard deviation are annualized.
  • Risk-free rate is assumed constant throughout the measurement period.
  • Returns are assumed to follow a normal distribution for Sharpe interpretation purposes.
  • Downside deviation must be separately estimated by the user; this calculator cannot derive it from raw return data.
  • No taxes, fees, or transaction costs are included in the return inputs.

Frequently asked questions

›What is a good Sharpe ratio?

Generally: >1 is acceptable, >2 is good, >3 is excellent. The S&P 500 has historically had a Sharpe ratio of roughly 0.5–0.8 over long periods.

›What is the difference between Sharpe and Sortino?

Sharpe divides excess return by total volatility (up and down). Sortino divides by downside deviation only. If a portfolio has high upside volatility but low downside volatility, Sortino will be higher — and arguably more meaningful.

›What risk-free rate should I use?

The current 3-month US Treasury bill yield is standard. Alternatively, use the 1-year T-bill for longer holding period comparisons. Avoid using the overnight Fed Funds rate for multi-month portfolios.

›Can the Sharpe ratio be negative?

Yes — it's negative when portfolio return is below the risk-free rate. A negative Sharpe ratio means you're taking risk but not even earning the risk-free return.

›Is a high Sharpe ratio always good?

Not necessarily. Strategies that sell volatility (e.g., covered calls, short puts) can produce artificially high Sharpe ratios by collecting steady premium — until a large loss materializes. Always examine the underlying strategy, not just the ratio.

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