Sharpe Ratio Calculator

Are you being compensated for the risk you're taking? The institutional standard for measuring strategy quality.

Uses & Examples

What Sharpe Ratio Tells You

The Sharpe Ratio answers one question: "How much extra return are you earning for each unit of risk you're taking?" A strategy returning 30% with wild 40% volatility might be worse than a 12% strategy with 8% volatility — Sharpe tells you which is actually the better risk-adjusted bet.

Interpretation Tiers

Below 0: You're doing worse than parking cash in T-bills. Stop trading this strategy.
0 to 1.0: Poor. You're earning a return, but not enough to justify the volatility.
1.0 to 2.0: Good. The realistic target for active traders. Hedge funds publish in this range.
2.0 to 3.0: Great. Institutional quality. Quant funds and top discretionary traders.
Above 3.0: Exceptional, and rare. Often a sign your sample is too small, or something hidden is making it look better than it is. Verify your math.

Worked Example

Annual return: 15% | Risk-free rate: 5% | Std deviation: 10%

Excess return: 15% − 5% = 10%

Sharpe Ratio = 10% ÷ 10% = 1.0

Verdict: Good — solid risk-adjusted performance, professional target range.

Compare: a 25% return with 30% std dev gives Sharpe = (25−5)/30 = 0.67 — worse despite higher returns.

What "Risk-Free Rate" Means

The risk-free rate is what you'd earn doing nothing risky — typically the 3-month Treasury bill yield. As of 2026, this is roughly 4-5%. Use the current 3-month T-bill rate from your broker or treasury.gov. The exact number matters less than being consistent across comparisons.

What "Standard Deviation" Means Here

Annualized standard deviation of your monthly or weekly returns. If your monthly returns swing wildly (+8%, -6%, +12%, -10%), your std dev is high. If they're consistent (+1.5%, +0.8%, -0.3%, +1.2%), it's low. Calculate from your actual trading record — most brokerage platforms or trade journals show this stat.