Sharpe Ratio Calculator
The Sharpe ratio is the most widely used measure of risk-adjusted investment performance in finance. It was introduced by William F. Sharpe in 1966 and answers the question: how much excess return (above the risk-free rate) am I earning per unit of total volatility? Two funds may have the same return, but if one achieves it with half the volatility, it has a superior Sharpe ratio. The ratio allows investors to compare funds, strategies, or portfolios that operate at different risk levels. This calculator accepts your portfolio's annualised return, the current risk-free rate (typically the 3-month Treasury bill yield), and the annualised standard deviation of portfolio returns to compute the Sharpe ratio. You can also enter period returns as a comma-separated list and the calculator will compute the mean, standard deviation, and Sharpe ratio automatically.
Sharpe ratio formula
Sharpe Ratio = (Portfolio Return - Risk-Free Rate) / Standard Deviation
Excess Return = Portfolio Return - Risk-Free Rate
All values should be annualised percentages or all same-period values
If you have period returns (e.g., monthly), annualise: Mean Annual Return = Mean Monthly x 12; Annual Std Dev = Monthly Std Dev x sqrt(12).
Sharpe ratio benchmarks
- Sharpe ratio below 1.0: suboptimal risk-adjusted return.
- Sharpe ratio 1.0 to 2.0: acceptable; typical of many diversified funds.
- Sharpe ratio 2.0 to 3.0: good; above-average risk-adjusted performance.
- Sharpe ratio above 3.0: excellent; rare for long-term strategies without leverage.
- S&P 500 historical Sharpe ratio: approximately 0.40 to 0.60 annualised.
Sharpe ratio: frequently asked questions
What is the Sharpe ratio?
The Sharpe ratio, developed by Nobel laureate William F. Sharpe, measures the excess return (above the risk-free rate) earned per unit of total risk (standard deviation). A higher Sharpe ratio indicates better risk-adjusted performance. It allows comparing investments or strategies that have different levels of risk.
What is a good Sharpe ratio?
Generally, a Sharpe ratio above 1.0 is considered acceptable, above 2.0 is good, and above 3.0 is excellent. The S&P 500 has produced a Sharpe ratio of roughly 0.4-0.5 historically on an annualised basis. Ratios below 1.0 suggest the return per unit of risk is relatively low.
What risk-free rate should I use?
The risk-free rate is typically the current yield on 3-month US Treasury bills, which represents a return you can earn with virtually no risk. As of mid-2026, check current T-bill rates at the U.S. Treasury website. For historical analysis, use the T-bill rate corresponding to each period.
What is the difference between the Sharpe ratio and the Sortino ratio?
The Sharpe ratio uses total standard deviation (both upside and downside volatility) as the risk measure. The Sortino ratio uses only downside deviation. Since most investors only care about negative returns (losses), the Sortino ratio is often considered more relevant for assessing downside risk.
Can the Sharpe ratio be negative?
Yes. When the portfolio return is below the risk-free rate, the Sharpe ratio is negative. A negative Sharpe ratio means you would have done better simply holding risk-free assets. A higher (less negative) Sharpe ratio is still better than a lower (more negative) one even when both are negative.
Official sources
- U.S. Treasury: Current Treasury Bill Yields (Risk-Free Rate).
- Federal Reserve Bank of St. Louis (FRED): 3-Month Treasury Bill Rate.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.