The Sharpe ratio is the most widely used measure of risk-adjusted return in investing. Developed by Nobel laureate William F. Sharpe, it answers a simple question: how much extra return are you getting per unit of risk? A higher Sharpe ratio means better performance relative to the risk taken. Use this calculator to evaluate your portfolio's efficiency and compare it against market benchmarks.
Portfolio Returns & Risk
Annualized total return over the period
Current 3-month T-Bill yield (benchmark)
Annualized volatility of returns
Required for Sortino ratio calculation
Sharpe Ratio Interpretation
Benchmark Comparison (Historical Sharpe Ratios)
For informational purposes only. Past performance does not guarantee future results. Historical benchmarks are approximate long-term averages. Not financial advice.
How to Use the Sharpe Ratio Calculator
The Sharpe ratio is a foundational concept in modern portfolio theory, giving investors a simple way to compare investments with different risk profiles. Two portfolios with the same total return can have very different Sharpe ratios if one achieved that return with much higher volatility. This Sharpe ratio calculator helps you objectively measure whether your returns justify the risk taken.
Step 1: Enter Your Portfolio Return
Use the annualized total return (including dividends and capital gains) for the period you're evaluating. This should be the same time period as your standard deviation measurement. For example, if evaluating the last 3 years, use the annualized 3-year return.
Step 2: Set the Risk-Free Rate
The risk-free rate represents the return you could earn without taking any risk. The standard choice is the current 3-month U.S. Treasury bill yield. As of early 2025, this is approximately 4.2-4.5%. Using the current T-Bill rate makes your Sharpe ratio reflect today's market environment.
Step 3: Enter Standard Deviation
Standard deviation measures how much your portfolio's returns fluctuate around the average. You can find this in your brokerage's portfolio analytics, or calculate it yourself from historical monthly returns using the annualized standard deviation formula. A 100% US stock portfolio typically has an annualized standard deviation of 15-20%.
Step 4: Optionally Calculate the Sortino Ratio
The Sortino ratio improves on the Sharpe ratio by only penalizing downside volatility — the kind of risk investors actually dislike. Enter the downside deviation (standard deviation of negative returns only) to see your Sortino ratio. Many analysts prefer the Sortino ratio for portfolios that aim to capture upside while limiting drawdowns.
FAQ
Is this Sharpe ratio calculator free?
Yes, completely free with no signup required. All calculations run in your browser — your financial data is never sent to any server.
Is my financial data private?
Absolutely. Everything runs entirely in your browser using client-side JavaScript. No data is transmitted or stored anywhere.
What is the Sharpe ratio and what does it measure?
The Sharpe ratio measures how much excess return you earn for each unit of risk taken. It divides the portfolio's return above the risk-free rate by the portfolio's standard deviation. A higher Sharpe ratio means better risk-adjusted performance — you're earning more return per unit of volatility.
What is a good Sharpe ratio?
Generally, a Sharpe ratio below 1.0 is considered suboptimal, 1.0-2.0 is good, and above 2.0 is excellent. The S&P 500 has historically produced a Sharpe ratio of roughly 0.4-0.5 over long periods. Hedge funds and institutional investors typically target ratios above 1.0. However, context matters — comparing ratios only makes sense within similar asset classes.
What is the difference between the Sharpe ratio and the Sortino ratio?
The Sharpe ratio penalizes all volatility equally, including upside gains. The Sortino ratio only penalizes downside volatility (returns below a target, usually zero or the risk-free rate). For portfolios with significant upside volatility, the Sortino ratio is a better measure because investors don't typically mind their portfolio going up.
What should I use as the risk-free rate?
The most common risk-free rate is the current 3-month or 1-year U.S. Treasury bill yield. As of early 2025, 3-month T-Bill yields were around 4.2-4.5%. Using the current T-Bill rate ensures your Sharpe ratio reflects today's opportunity cost of capital.
How do I find my portfolio's standard deviation?
Standard deviation of returns measures how much your portfolio's monthly or annual returns vary from the average. You can calculate it from historical return data using tools like Excel (STDEV function) or your brokerage's portfolio analytics. Annual standard deviation for a 100% US stock portfolio is historically around 15-20%.