Use this Sharpe ratio calculator to measure risk-adjusted return for an investment, portfolio, fund, or strategy. Supports both summary-input estimation and direct time-series computation.
Use template ->What is the Sharpe ratio?
The Sharpe ratio measures how much excess return an investment delivers for each unit of risk taken, where risk is measured as the volatility of returns (standard deviation). It was developed by William Sharpe as a way to compare portfolios or strategies that carry different risk levels on a common scale.
A higher Sharpe ratio indicates more return per unit of volatility. A negative ratio means the investment returned less than the risk-free rate for the period measured, which is a meaningful signal regardless of absolute return performance.
Sharpe ratio formula
Sharpe Ratio = (Rp − Rf) / σp
Where Rp is the average portfolio return over a period, Rf is the risk-free rate over the same period, and σp is the standard deviation of portfolio returns. Units must be consistent: if Rp is monthly, Rf and σp must be monthly too.
For annualized Sharpe from periodic data, a common approach is to annualize both the numerator and denominator separately before dividing. The numerator scales by the number of periods per year; the denominator scales by its square root.
How the Sharpe ratio calculator works
The calculator supports both summary-input mode, where average return, risk-free rate, and volatility are entered directly, and time-series mode, where the ratio is derived from a return series. Frequency handling and risk-free rate conversion are explicit inputs because those choices drive comparability across different calculations.
A Sharpe ratio is more trustworthy when sample length and return series behavior are visible alongside it. A high ratio on a short window or a volatile series warrants more skepticism than the number alone suggests. Stability across time windows is a more reliable signal than any single high-point estimate.
How the Sharpe ratio is used in portfolio analysis
The Sharpe ratio is used to compare funds, strategies, and portfolios on a risk-adjusted basis. It is a standard metric in performance reporting, fund evaluation, and strategy backtesting. Portfolio managers use it to communicate risk-adjusted performance to investors and to compare competing strategies where raw return alone would favor the higher-risk option.
One practical limitation: the Sharpe ratio assumes returns are reasonably well-behaved. For strategies with significant skew or fat tails, the Sortino or Calmar ratio may be more informative complements.