Sharpe Ratio Calculator

The Sharpe ratio is a measure of risk-adjusted return that helps investors understand how much excess return they receive for the extra volatility they endure. A higher Sharpe ratio indicates better risk-adjusted performance.

Our calculator computes the Sharpe ratio for your portfolio and compares it with common benchmarks to help you evaluate your investment performance.

Sharpe Ratio Formula:

Sharpe Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation

Sharpe Ratio Interpretation:

• Above 2: Excellent risk-adjusted returns
• 1 to 2: Good risk-adjusted returns
• 0.5 to 1: Fair risk-adjusted returns
• 0 to 0.5: Poor risk-adjusted returns
• Below 0: Portfolio underperforming risk-free rate

Components Explained:

• Portfolio Return: Annual return of your investment portfolio
• Risk-Free Rate: Return on government securities (typically 10-year G-Sec)
• Portfolio Risk: Standard deviation (volatility) of portfolio returns
• Excess Return: Portfolio return minus risk-free rate

Uses of Sharpe Ratio:

• Portfolio Comparison: Compare different investment options
• Performance Evaluation: Assess fund manager performance
• Risk Assessment: Understand risk-return trade-off
• Investment Selection: Choose investments with better risk-adjusted returns

Limitations:

• Assumes normal distribution of returns
• Based on historical data, may not predict future performance
• Doesn't account for downside risk specifically
• May not be suitable for all investment strategies

Features:

• Calculate Sharpe ratio for any portfolio
• Compare with benchmark indices
• Visual comparison charts
• Interpretation and performance guidance
• Risk-adjusted return analysis