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The Sharpe Ratio Calculator helps investors evaluate the performance of an asset by measuring its excess return relative to the volatility it takes to achieve that return. This metric is essential for determining whether an investment's higher returns are due to smart decision-making or simply taking on excessive, uncompensated risk.
The Sharpe Ratio Calculator measures the risk-adjusted return of an investment by comparing its excess return over a risk-free rate to its standard deviation of returns, helping investors evaluate performance relative to risk.
The Sharpe Ratio helps investors understand the return of an investment compared to its risk, with a higher ratio indicating better risk-adjusted performance.
A Sharpe Ratio greater than 1 is generally considered good, above 2 is very good, and above 3 is excellent, though context and benchmark comparisons are important.
The ratio is calculated by subtracting the risk-free rate from the investment's return and dividing by the standard deviation of the investment's excess return.
Investors should use the Sharpe Ratio as one of several metrics when evaluating investments, as it does not account for all types of risk or non-normal return distributions.
Sharpe Ratio = (Rp - Rf) / ฯp
The formula subtracts the risk-free rate from the portfolio's expected return and divides the result by the standard deviation of the portfolio's excess return.
A portfolio manager might use this calculator to compare two different mutual funds that both show a 10% annual return. By inputting the historical volatility of each fund, the manager can determine which fund provided a smoother ride for the investor. It is also used by individual investors to assess if their personal stock selection is outperforming a passive index on a risk-adjusted basis. Ultimately, it helps in constructing a more efficient portfolio that maximizes returns while minimizing exposure to unnecessary market swings.
If a portfolio has an expected return of 12%, the risk-free rate is 2%, and the portfolio's standard deviation is 5%, the Sharpe ratio would be (12 - 2) / 5, resulting in a score of 2.0. A score of 2.0 is generally considered very good, indicating the investment provides strong returns for the amount of risk taken.
These authoritative sources inform our calculator methodology and ensure accuracy.
Written by Qasem Mohammed
Financial tools developer and founder of QFINHUB. All calculators are built with industry-standard formulas and reviewed for accuracy. Content is for educational purposes only โ always consult a qualified financial professional for decisions about your specific situation.
Last updated: June 25, 2026 ยทAbout QFINHUB ยท Editorial Policy
Last reviewed by Qasem Mohammed โ June 25, 2026
AI & Software Engineer, Founder & Lead Developer at QFINHUB ยท Editorial Policy
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Sharpe Ratio
0.50
Interpretation
Fair (0.5โ1)
Excess Return
+7.50%