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Sharpe Ratio Calculator

This calculator measures the Sharpe Ratio — a financial metric that evaluates the risk-adjusted return of an investment. It’s widely used by investors, analysts, and portfolio managers to compare the efficiency of different assets or funds.

Risk-Adjusted Return (Sharpe Ratio) Calculator

Input Fields
Rp
%
Expected or historical annual return of the portfolio
Rf
%
Return from a risk-free asset (e.g., treasury bond)
σ
%
Volatility or standard deviation of portfolio returns
If enabled, the result will update automatically when you change any value.

Formula of the Sharpe Ratio Calculator

Formula
$$\text{Sharpe Ratio} = \frac{R_p – R_f}{\sigma_p}$$

Where:

  • $$R_p​$$ = Expected portfolio return
  • $$R_f$$​ = Risk-free rate
  • $$\sigma_p$$​ = Standard deviation (volatility) of portfolio return

Explanation:
The Sharpe Ratio shows how much excess return you receive for the extra volatility you endure. A higher ratio indicates a better risk-adjusted performance.

Sharpe Ratio is a powerful tool for portfolio optimization. It helps investors:

  • Compare funds or strategies with similar returns but different risks
  • Assess whether higher returns justify higher volatility
  • Make smarter investment decisions

Example Variables:

  • Portfolio Return: 12%
  • Risk-Free Rate: 2%
  • Standard Deviation: 10%
  • Sharpe Ratio = (0.12 − 0.02) / 0.10 = 1.0

Interpretation:

  • < 1 = suboptimal risk-adjusted return
  • 1–2 = acceptable/good
  • > 2 = excellent risk-adjusted performance

Use Cases:

  • Mutual fund comparison
  • Hedge fund evaluation
  • Personal investment portfolio analysis

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