Sharpe Ratio Calculator

Sharpe Ratio measures excess return per unit of risk (volatility). It was developed by Nobel laureate William Sharpe.

Sharpe Ratio = (Average Return − Risk-Free Rate) / Standard Deviation of Returns

Interpretation:

• < 0 — Returns below the risk-free rate
• 0–1.0 — Suboptimal risk-adjusted returns
• 1.0–2.0 — Good (most hedge funds target this range)
• 2.0–3.0 — Very good
• 3.0+ — Excellent (rare in sustained live trading)

Important considerations:

• Use consistent time periods (daily returns → annualize by multiplying by √252)
• The risk-free rate is typically the 3-month Treasury bill yield
• Sharpe ratio penalizes upside volatility equally with downside — see Sortino ratio for an alternative
• High-frequency strategies can show artificially high Sharpe ratios
• A Sharpe above 2.0 sustained over years is considered exceptional