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Sharpe Ratio Calculator

Return per unit of risk, from a return series or from summary figures. The Sharpe ratio treats a good month and a bad month as equally risky, which is its central limitation and the reason the Sortino ratio exists.

Also called: risk adjusted return calculator, sharpe calculator.

Leave blank to enter an annual return and volatility directly.

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Sharpe ratio
1.32

1.32, from 15.7% return against 7% volatility over a 6.5% risk free rate. Above 1 is generally considered good, though only against a comparable strategy over a comparable window. The Sharpe ratio penalises upside volatility exactly as hard as downside. A fund that occasionally has an excellent month is marked down for it.

Annualised return
15.7%
Annualised volatility
7%
Return above the risk free rate
9.2%
Observations used
12
Best period
4.2%
Worst period
-2.3%
How to read it
Above 1 is generally considered good, though only against a comparable strategy over a comparable window.
What it misses
The Sharpe ratio penalises upside volatility exactly as hard as downside. A fund that occasionally has an excellent month is marked down for it.
How this is calculated

An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.

Method and background

This is what the calculation gives for the numbers you entered. It is an estimate, not advice, and it knows nothing about your situation beyond those numbers. Rules for India change on a published schedule; the effective date is shown on every rule-based tool.

How this is calculated

Excess return divides by the standard deviation of returns, so a portfolio that earned more by taking more volatility scores no better than a quieter one that earned less. Where a series is entered the page computes the mean and the sample standard deviation and annualises them, multiplying the mean by the number of periods and the deviation by the square root of that number, which is the standard scaling and assumes returns are independent across periods. That assumption fails for anything with smoothed or appraised pricing, which is how illiquid strategies produce implausibly high Sharpe ratios.

return above the risk free rate, per unit of volatility; the denominator punishes upside volatility exactly as hard as downside
R_p
Portfolio return
R_f
Risk free rate
σp
Standard deviation of returns

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

a monthly series

Period returns, in percent
2.1, -1.4, 3.6, 0.8, -0.5, 4.2, 1.1, -2.3, 2.9, 0.4, 1.7, 3.1
Periods per year
12
Risk free rate, annual
6.5%
Annual return, if no series
0%
Annual volatility, if no series
0%

Sharpe ratio1.32

monthly mean 1.30833 x 12

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summary figures with no series

Period returns, in percent
Periods per year
12
Risk free rate, annual
6.5%
Annual return, if no series
14%
Annual volatility, if no series
12%

Sharpe ratio0.63

(14 - 6.5) / 12

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Method and limits

What it assumes

  • Returns are independent across periods, which is what allows the square root of time scaling.
  • The sample standard deviation is used, since a return history is a sample rather than a population.

What it deliberately does not model

  • Upside volatility is penalised identically to downside volatility.
  • Illiquid or smoothed assets understate volatility and so overstate the ratio.
  • A negative excess return makes the ratio hard to interpret, since more volatility then makes it look better.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

What is a good Sharpe ratio?
Above 1 is generally considered good and above 2 very good, but the number only means something against a comparable strategy over a comparable period. A Sharpe ratio quoted without its window is not information.
Why does volatility scale with the square root of time?
Because variances add over independent periods while means add linearly. If that independence fails, and it does for smoothed pricing, the annualised figure is wrong.