Sharpe Ratio Calculator
Punishes upside volatility exactly as hard as downside.
Work out Sharpe Ratio. Punishes upside volatility exactly as hard as downside. Shows the working, not just the answer.
Sharpe ratio
0.533
Positive but modest — the excess return is small relative to the volatility endured
The Sharpe ratio is excess return over the risk-free rate, divided by volatility — return per unit of risk taken. A ratio of 1 is the usual benchmark for an acceptable risk-adjusted return, and anything above 2 is genuinely rare over a long period. Its weakness is that it treats upside and downside volatility identically. A fund that occasionally leaps upward is penalised exactly as much as one that occasionally collapses, which is why the Sortino ratio — which counts only downside deviation — exists. It also flatters strategies that sell insurance: steady small gains with a rare catastrophic loss produce a superb Sharpe ratio right up until the loss arrives. A very high figure over a short period is a reason to look harder, not to relax.
How the Sharpe Ratio Calculator works
Excess return per unit of volatility, with the interpretation bands investors actually use. Its blind spot is worth knowing: it treats a fund that occasionally leaps upward exactly like one that occasionally collapses.
Also known as: risk adjusted return calculator · is this fund good for the risk · sharpe versus sortino · return per unit of volatility
Not financial advice. This calculator is for planning and illustration, not financial advice. Real products carry fees, taxes, and terms it does not model. Confirm figures with your lender or a qualified adviser before committing.
Frequently asked questions
What is the Sharpe ratio?
Return above the risk-free rate divided by the standard deviation of returns. It measures how much return you got for the volatility you endured.
What is a good Sharpe ratio?
1 is the usual benchmark for acceptable risk-adjusted performance, 2 is very good, and 3 sustained over a long period is rare enough to be worth examining sceptically.
What is the Sharpe ratio's weakness?
It treats upside and downside volatility identically. A fund that occasionally jumps upward is penalised exactly as much as one that occasionally collapses, which is what the Sortino ratio was designed to fix.
Can a high Sharpe ratio be misleading?
Very. Strategies that sell insurance — steady small gains with rare catastrophic losses — produce superb Sharpe ratios right up until the loss arrives. A high figure over a short period is a reason to look harder.
What risk-free rate should I use?
Short-dated government debt in your own currency, matched roughly to the measurement period. Using a stale or foreign rate distorts the excess return, which is the whole numerator.
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