Sharpe Ratio Calculator - Risk-Adjusted Returns

The Sharpe ratio calculator measures how much excess return a portfolio or strategy earned per unit of volatility. William Sharpe’s ratio is (R_p − R_f) / σ, where R_p is the portfolio return, R_f is the risk-free rate, and σ is the standard deviation of returns over the same period. A higher Sharpe means more compensation for the risk taken, which is why allocators use it to compare a stock fund with a bond fund, or two trading systems that cannot be ranked on raw return alone. Enter all three inputs in the same units. If return and the risk-free rate are annual percents, volatility must also be the annualized standard deviation in percent. Mixing a 12% annual return with a 2% monthly volatility will produce a meaningless number. The engine does not annualize for you and does not convert decimals: 12 means 12%, not 0.12. Because both numerator and denominator are percents, they cancel and the Sharpe ratio is a unitless multiple such as 0.8 or 1.5. Interpretation is contextual. Many long-only equity allocations land between 0.3 and 1.0 depending on the window; a ratio above 1 is often called attractive in textbook examples, but a quiet bond bull market can print a high Sharpe that disappears when rates rise. Negative Sharpes mean the portfolio lagged cash. Zero volatility is undefined; the calculator returns 0 in that case rather than dividing by zero. Caveats matter as much as the formula. Sharpe uses total volatility, so it punishes upside jumps the same as drawdowns. It assumes returns are well summarized by mean and variance, which is a poor description of options, trend-following, or crash-risk strategies. It is also window-dependent: a three-year Sharpe is not a forecast. Use a Treasury bill or cash rate that matches the return period, and do not compare a monthly Sharpe with an annual Sharpe without converting. The result is an educational risk-adjusted statistic, not a recommendation to buy or sell.