About the Sharpe Ratio Calculator
What is the Sharpe Ratio Calculator?
The Sharpe ratio measures how much extra return an investment earns for each unit of risk it takes. Two funds may both return 14%, but the one that got there with less volatility has the higher Sharpe ratio and is the more efficient investment.
Enter the expected (or historical) annual return, the risk-free rate (for example the 91-day T-bill or a bank FD rate) and the annual volatility (standard deviation of returns). The calculator returns the Sharpe ratio, the excess return and a quality rating.
How to use the Sharpe Ratio Calculator
- Expected Return (%) (sample: 14)
- Risk-Free Rate (%) (sample: 6)
- Volatility (%) (sample: 18)
- Press Calculate Sharpe Ratio (results also refresh as you type). The result card shows the Sharpe Ratio, along with Expected Return, Risk-Free Rate and Quality.
Formula used
Sharpe ratio = (Return − Risk-free rate) ÷ Volatility
- Volatility = the annualised standard deviation of returns
Use the same period for return and volatility. Mutual fund factsheets in India report the Sharpe ratio, usually over 3 years.
Worked example
These are the sample values already filled in the calculator above, and the result it returns for them:
| Input | Sample value |
|---|---|
| Expected Return (%) | 14 |
| Risk-Free Rate (%) | 6 |
| Volatility (%) | 18 |
| Result | Value |
|---|---|
| Sharpe Ratio | 0.44 |
| Expected Return | 14% |
| Risk-Free Rate | 6% |
| Quality | Weak |
Tips for using the Sharpe Ratio Calculator
- Compare Sharpe ratios only between funds in the same category.
- A negative Sharpe ratio means the investment earned less than the risk-free rate.
- The Sortino ratio is a variant that only penalises downside volatility.