Sharpe Ratio Calculator
Enter the annualised return, risk-free rate, and volatility to compute the risk-adjusted return (Sharpe ratio).
Input Data
Results
At a glance:The Sharpe ratio is the excess return over the risk-free rate divided by volatility, showing reward per unit of risk taken.
Formula
sharpe = (returnRate − riskFreeRate) / volatility
How to Use
- Enter the annualised return and risk-free rate.
- Enter the annualised volatility.
- Review the Sharpe ratio and rating (above 1 good, above 2 excellent).
FAQ
What Sharpe ratio is considered good?
Generally: below 1 is ordinary, 1–2 is good, above 2 excellent, above 3 outstanding. But it varies by market and period — compare with similar funds/portfolios rather than treating the number as absolute.
What if volatility is 0?
A risk-free asset (e.g. a deposit) has near-zero volatility, making the Sharpe ratio meaningless (division by zero). This tool flags it as not applicable when σ ≤ 0.
What are the drawbacks of the Sharpe ratio?
It assumes returns are normally distributed and understates fat-tail ('black swan') risk; it uses total volatility (including upside), so it is less targeted than the Sortino ratio which looks only at downside; and short-period data is unstable.
How is it different from the Sortino ratio?
The Sortino ratio's denominator uses only downside volatility (the harmful kind), with the same numerator as Sharpe. A Sortino higher than the Sharpe means most of the volatility comes from good upside swings.
Which risk-free rate should I use?
Use a government-bond yield close to your investment horizon: short-term bills for short horizons, longer bonds for long-term investing. For HKD you can reference US Treasuries (the linked exchange rate) or HKD bond yields.
What does a negative Sharpe ratio mean?
It means the return is below the risk-free rate — taking risk actually underperformed the safest choice. Unless for a special reason (hedging, liquidity), it is generally not worth it.
References
Content review: Calculatorism Science Team. Results are for reference only; please refer to the relevant authorities for the official figures.