Sharpe Ratio Calculator
Divide the excess return (portfolio return minus the risk-free rate) by total risk (standard deviation) to measure a fund's risk-adjusted return.
Input Data
Results
At a glance:The Sharpe ratio measures return per unit of total risk. Sharpe = (portfolio return − risk-free rate) ÷ standard deviation of return. The risk-free rate is the return of a safe asset; the standard deviation is the portfolio's volatility. A higher Sharpe is better; a negative one means underperformance versus the risk-free rate.
Formula
Sharpe ratio = (portfolio return − risk-free rate) ÷ standard deviation.
$$$Sharpe = \\dfrac{R_p - R_f}{\\sigma_p}$$$$$$\\dfrac{12\\% - 2\\%}{10\\%}=1.0$$$How to Use
- Enter the portfolio return.
- Enter the risk-free rate and the return standard deviation.
- Read the Sharpe ratio.
FAQ
What Sharpe ratio is good — and where should Hong Kong investors get the risk-free rate?
A ratio above 1 is generally good, above 2 excellent, above 3 outstanding; below 1 means weak risk-adjusted return, and compare within the same category. For the risk-free rate (Rf), the theoretical choice is a near-default-free asset matching your investment horizon. For HKD, reference Exchange Fund Notes/bills; for USD portfolios, US T-bills. Also use time-deposit rates as a retail proxy, and keep the currency and term consistent with your portfolio (HKD portfolio → HKD Rf, USD → USD Rf; use a short-term 3-month or 1-year rate). In a high-rate environment a 4%–5% Rf visibly lowers the excess return and the Sharpe ratio, so use a current Rf.
What does a negative Sharpe ratio mean, and can negative values be compared?
A negative Sharpe means the portfolio return is below the risk-free rate — you took risk yet earned less than a safe asset, a clear warning. Comparing negative values is misleading: with a negative numerator, a larger denominator (volatility) makes the number appear closer to zero (seemingly 'better'), the opposite of the positive case. Example: both have excess return −4%, but 8% volatility gives −0.5 while 4% gives −1.0 — the −0.5 looks higher only because it is more volatile, not better. So when negative, don't rank by the number; instead compare absolute loss, the (less negative) excess return, or use max drawdown and the Sortino ratio, and look at longer multi-period performance.
How is the Sharpe ratio different from the Sortino ratio?
The Sharpe ratio uses total standard deviation (both upside and downside) as risk; the Sortino ratio counts only downside volatility, penalising the losses investors actually fear. When Sortino is much higher than Sharpe, most of the volatility is upside 'good' swings rather than risk. Use Sortino when you care only about downside.
Is the Sharpe ratio reliable on its own?
It is a useful snapshot but has limits. It assumes returns are roughly normal, so it understates fat-tail ('black swan') risk; it treats upside and downside volatility equally; and over a short period the inputs (return, volatility) are unstable. Read it with other metrics (Sortino, max drawdown, beta) and over a long enough window, and never as the sole buy/sell signal.
Why can a high return still give a low Sharpe ratio?
Because the Sharpe ratio divides excess return by volatility, not by return itself. A portfolio with 15% return but 20% volatility gives (15−2)/20 ≈ 0.65, while one with only 8% return but 4% volatility gives (8−2)/4 = 1.5 — the latter is far more efficient per unit of risk. The lesson: compare investments by reward per unit of risk, not by the return headline. High return with high volatility can be less efficient than modest return with low volatility.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.