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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?

Sharpe ratios above 1.0 are generally considered acceptable, above 2.0 is good, and above 3.0 is excellent. For context, the S&P 500 has historically delivered a Sharpe ratio of roughly 0.5–0.8 over long periods, despite being the gold standard for equity investing. This means most active managers struggle to beat 1.0. A Sharpe ratio above 2.0 suggests genuinely superior risk-adjusted performance worthy of serious consideration.

›What is the difference between Sharpe and Sortino?

Both measure risk-adjusted return, but they define risk differently. Sharpe divides excess return by total volatility (both upside and downside), treating all price fluctuation equally. Sortino divides excess return by downside deviation only — the volatility of negative returns. If your portfolio experiences high upside volatility but limited downside swings (like a growth strategy in bull markets), Sortino will be higher than Sharpe. Many investors argue Sortino is more meaningful because it ignores upside surprises, which you're happy about anyway.

›What risk-free rate should I use?

The current 3-month US Treasury bill yield is the standard and most widely used. For longer-term portfolio analysis or comparisons, you can use the 1-year T-bill yield instead. Avoid using the overnight Fed Funds rate for portfolios held for months or years — it's designed for overnight borrowing and doesn't reflect the cost of funds over your actual holding period. As of 2025, T-bill rates are around 4–5%, which significantly impacts the Sharpe ratio of lower-returning portfolios.

›Can the Sharpe ratio be negative?

Yes, and it's a red flag. A negative Sharpe ratio occurs when your portfolio's average return falls below the risk-free rate, meaning you took on volatility and lost money compared to doing nothing and holding Treasury bills. This can happen in down markets or with poorly chosen investments. A negative Sharpe doesn't mean the investment is worthless — bonds might have negative Sharpe in high-rate environments — but it indicates you're not being compensated for the risk you're taking.

›Is a high Sharpe ratio always good?

Not always — and this is a critical caveat. Strategies that sell volatility, such as covered calls or short puts, can create artificially inflated Sharpe ratios by collecting steady premiums month after month. The high ratio can mask extreme tail risk: everything looks great until the market gaps down 20% overnight and the strategy implodes. A hedge fund might show a Sharpe ratio of 3.0 for five years, then lose 50% in year six. Always dig into the underlying strategy and risk exposure, not just the ratio. Look at the worst-case drawdown, historical returns during crashes, and the composition of the portfolio.

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