Sharpe Ratio Calculator
Calculate the Sharpe ratio of an investment or portfolio to measure return earned per unit of risk taken.
Your results
Calculation breakdown
- Sharpe ratio
- (portfolio return − risk-free rate) ÷ standard deviation of returns
Worked example
A portfolio returning 9% a year with a 4.5% risk-free rate and 12% standard deviation has a Sharpe ratio of 0.375, meaning modest return for the volatility taken.
Assumptions
- Standard deviation must be sourced from historical return data or a fund fact sheet; it is not calculated by this tool.
- Higher is generally better, but comparisons are only meaningful between similar asset classes and time periods.
- Based on historical figures, which do not guarantee future risk or return.
How this calculator works
The Sharpe ratio divides an investment's excess return over the risk-free rate by its standard deviation of returns, giving a measure of return per unit of volatility. Enter the portfolio's annual return, a risk-free rate such as a term deposit or government bond yield, and the return's standard deviation to calculate it.
Frequently asked questions
What is a 'good' Sharpe ratio?
As a rough guide, above 1 is considered good, above 2 very good and below 0 means the investment underperformed the risk-free rate for the risk taken; context and asset class matter.
What should I use as the risk-free rate?
A common Australian proxy is the current term deposit rate or 10-year government bond yield; enter whichever benchmark you prefer to compare against.
Where do I get the standard deviation figure?
Fund fact sheets often disclose historical volatility (standard deviation); otherwise it must be calculated from a series of historical returns.
Results are estimates only and are not financial, tax, legal or credit advice.