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It is a method, which is used to measure the fund’s risk-adjusted return on an investment. This tutorial explains how to calculate the Sharpe Ratio.
Online financial calculator to calculate the sharpe ratio value by entering the Expected portfolio return, Risk free rate & Portfolio standard deviation.
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Formula of Sharpe Ratio
Sharpe Ratio = (Expected portfolio return – Risk free rate) / Portfolio standard deviation
Example of Sharpe Ratio
A manager generates a return of 15% with the risk free-rate of 5%, and a manager’s portfolio has a standard deviation of 8%, then find the sharpe ratio for manager portfolio?
Expected portfolio return= 15%, Risk free rate= 5% Portfolio standard deviation = 8%
S(x) – Sharpe Ratio
Substitute the given values in the formula,
|S(x)||=||(Expected portfolio return – Risk free rate) / Portfolio standard deviation|