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Sharpe Ratio Calculator

Measure the risk-adjusted excess return of an investment portfolio using the Sharpe Ratio.

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Calculation Parameters

Specify your inputs below.

Portfolio Return (%)

Risk-Free Interest Rate (%)

Standard Deviation of Returns (%)

Calculated Result

Excess Return 8.00%

Sharpe Ratio 1.00

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Expert Tip

A Sharpe Ratio above 1.0 is considered good, while a ratio above 2.0 is considered very good.

How this Calculator Works

This calculator computes the Sharpe Ratio, which evaluates the excess return generated per unit of portfolio volatility. It helps investors determine if portfolio yields are due to smart investment choices or taking on excessive risk. Wealth managers use it to compare portfolios.

Formula & Methodology

Sharpe Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Volatility - Portfolio Return is the average annual return rate of the assets. - Risk-Free Rate is the return on riskless deposits (e.g. government bills). - Portfolio Volatility is the standard deviation of the portfolio returns.

Step-by-Step Calculation Example

Here is a step-by-step example showing how the calculations are performed:

A stock portfolio yields an annual return of 10%, has a volatility of 12%, and the risk-free interest rate is 2%. 1. Calculate excess return: 10% - 2% = 8%. 2. Divide by portfolio volatility: 8% / 12% = 0.67. Result: The Sharpe Ratio is 0.67.

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Detailed Insights & Expert Guide

ℹ️ About this Calculation

This investment analytics calculator evaluates portfolio yield, compounding growth, risk-adjusted returns, present/future asset valuations, and capital growth metrics based on CFA and modern portfolio theory (MPT) principles.

Variable Glossary

Input

Investment Parameters

Initial principal, periodic contribution, interest rate, discount factor, holding period, or asset price inputs.

Parameter

Performance Metrics

Compound Annual Growth Rate (CAGR %), Net Present Value (NPV), Internal Rate of Return (IRR), or Sharpe ratio.

How to Calculate Step-by-Step

Step 1

Enter your initial investment capital, asset purchase prices, or cash flow streams.

Step 2

Set compounding frequency, discount rate, or benchmark risk-free rate factors.

Step 3

Review calculated total return value, annualized growth %, or risk-adjusted alpha/beta statistics.

FAQ

How does compounding frequency impact investment returns?

More frequent compounding (e.g. monthly or daily vs. annually) generates higher effective annual yields (APY) because interest is calculated on accumulated interest earlier in the period.

What is the difference between Sharpe Ratio and Sortino Ratio?

The Sharpe ratio divides excess return by total standard deviation (both upside and downside volatility), whereas the Sortino ratio divides excess return by downside deviation only.

Should investment calculators replace professional wealth management?

No. Investment calculators model financial mathematics under assumed growth rates. Actual market performance fluctuates, so consult a licensed financial planner (CFP) or RIA for personalized advice.