📊 Sharpe Ratio Calculator
Calculate risk-adjusted return of a portfolio relative to a risk-free benchmark.
How to Use the Sharpe Ratio
Sharpe Ratio = (Portfolio Return − Risk-Free Rate) ÷ Standard Deviation. It measures how much excess return you earn per unit of risk. A Sharpe of 1.0 means you earn 1% of excess return for every 1% of volatility. Higher is better. The S&P 500 historically produces a Sharpe of ~0.4–0.6. Sharpe above 1.0 is considered good; above 2.0 is exceptional.
Sharpe vs Sortino Ratio
The Sharpe ratio penalizes both upside and downside volatility equally. The Sortino ratio only penalizes downside volatility — it uses downside deviation instead of total standard deviation. For strategies with positively skewed returns, the Sortino ratio gives a more favorable (and arguably more accurate) picture of risk-adjusted performance.
People Also Ask
Benchmark: under 0 = losing to risk-free rate. 0–0.5 = subpar. 0.5–1.0 = acceptable. 1.0–2.0 = good. Above 2.0 = very good to excellent. Hedge funds targeting market-neutral strategies aim for Sharpe of 1.5–2.5. Passive S&P 500 investing typically produces Sharpe of 0.4–0.6 historically.
Use the current 3-month US Treasury bill yield, which closely approximates the truly risk-free rate. As of 2024, the 3-month T-bill yield is approximately 5%. Some use the 10-year Treasury yield for longer-horizon comparisons.