Sharpe Ratio Calculator
Measure how much excess return a portfolio earns for each unit of risk. Enter summary stats, or paste a series of periodic returns and let the calculator find the mean, volatility, Sharpe ratio, downside-risk Sortino ratio, and annualized figures, with every step shown.
Formula
Worked example
A portfolio returns 12% with a 4% risk-free rate and 15% volatility: excess return = 12% − 4% = 8%, so Sharpe = 8 ÷ 15 = 0.53. From 12 monthly returns instead, annualize the mean by multiplying by 12 and the standard deviation by the square root of 12 before dividing.
What the Sharpe ratio measures
Developed by Nobel laureate William F. Sharpe, the Sharpe ratio answers a simple question: how much return did an investment earn for the risk it took? It subtracts the risk-free rate from the portfolio return to isolate the excess return earned for taking on risk, then divides by the standard deviation of returns, the most common measure of total volatility. The result expresses reward per unit of risk, letting you compare very different strategies on a level footing.
Summary stats or a paste of returns
If you already know your annual return and volatility, the summary mode gives the ratio in one line. If you only have a track record, switch to series mode and paste each periodic return: the calculator computes the mean and the sample standard deviation for you, then annualizes them. Annualizing matters because a Sharpe ratio is only comparable when expressed over the same horizon. The arithmetic mean return scales by the number of periods per year (252 trading days, 52 weeks, 12 months, or 4 quarters), while volatility scales by the square root of that number, since variance, not standard deviation, adds across independent periods.
Sortino ratio and benchmark comparison
In series mode the calculator also reports the Sortino ratio, a close cousin that divides excess return by downside deviation rather than total volatility. Because it only penalizes returns that fall below the risk-free hurdle, the Sortino ratio rewards strategies whose swings are mostly to the upside, which the Sharpe ratio treats as risk. Enter an optional benchmark Sharpe ratio, for example a broad index measured over the same window, to see at a glance whether your strategy delivered more or less return per unit of risk than the market.
How to read the result and its limits
A higher Sharpe ratio is better: more excess return for the same volatility. As a rough rule of thumb, below 1.0 is often viewed as sub-optimal, 1.0 to 2.0 as good, 2.0 to 3.0 as very good, and above 3.0 as excellent. These bands are conventions, not laws. The ratio assumes returns are roughly normally distributed, treats upside and downside swings identically, and is sensitive to the measurement window and the choice of risk-free rate. It can also be inflated by smoothing returns or by leverage. Compare ratios only between strategies measured over the same period, with the same risk-free benchmark and the same return frequency.
Interpreting the Sharpe ratio
| Sharpe ratio | Interpretation |
|---|---|
| Below 1.0 | Sub-optimal |
| 1.0-2.0 | Good |
| 2.0-3.0 | Very good |
| Above 3.0 | Excellent |
Common rule-of-thumb bands. Treat them as conventions, not hard cutoffs.
Frequently asked questions
What is a good Sharpe ratio?
As a rough guide, a ratio above 1.0 is considered good, above 2.0 very good, and above 3.0 excellent. Below 1.0 is usually seen as sub-optimal because the return did not sufficiently reward the risk taken. These bands are conventions, not strict rules.
How do I annualize a Sharpe ratio from monthly returns?
Multiply the average periodic return by the number of periods per year and multiply the standard deviation by the square root of that number, then divide the annual excess return by the annual volatility. For monthly data that is mean times 12 and standard deviation times the square root of 12 (about 3.46). The series mode does this automatically for daily, weekly, monthly, quarterly or annual data.
What is the difference between the Sharpe and Sortino ratios?
Both divide excess return by a risk measure. The Sharpe ratio uses total volatility (standard deviation of all returns), while the Sortino ratio uses only downside deviation, the volatility of returns below the target. The Sortino ratio is more forgiving of large positive swings, so it suits strategies with asymmetric or skewed returns.
What does a negative Sharpe ratio mean?
A negative ratio means the portfolio returned less than the risk-free rate, so it took on risk without being compensated for it. You would have been better off holding a safe asset like Treasury bills over that period.