What is the Sharpe ratio formula?

Sharpe ratio = (Rp − Rf) ÷ σp: portfolio return minus the risk-free rate, divided by the standard deviation of the portfolio's returns.

What is a good Sharpe ratio?

Above 1 is generally considered good, above 2 very good. Compare funds with similar strategies over the same period.

How do I annualize a monthly Sharpe ratio?

Multiply it by √12, which is the same as annualizing the excess return (× 12) and the volatility (× √12).

What is the difference between Sharpe and Treynor?

Sharpe divides by total risk (standard deviation); Treynor divides by market risk (beta).

Sharpe Ratio Formula and Calculator

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Sharpe Ratio Calculator

The Sharpe ratio measures risk-adjusted performance: how much return a portfolio earned above the risk-free rate for each unit of total risk it took, where risk is the standard deviation of its returns. A higher ratio means a better reward for the volatility endured, which makes it the most widely used way to compare funds and strategies with different risk levels.

Formula

Sharpe ratio = R_p − R_fσ_p

Where

R_p: portfolio return (average, per year)
R_f: risk-free rate for the same period
σ_p: standard deviation of the portfolio’s returns (volatility), same period

Calculator

Portfolio return (Rp) (%)

Risk-free rate (Rf) (%)

Standard deviation (σp) (%)

Result and step-by-step solution

Sharpe ratio

0.5333

The portfolio earned 0.53 units of excess return per unit of total risk.

Excess return
12% − 4% = 8%
Divide by volatility
8%15% = 0.5333

How to use the formula

All three inputs must cover the same period. For annual figures use the annual return, the annual risk-free rate and the annualized standard deviation (monthly standard deviation × √12). The standard deviation of a return series can be computed with the arithmetic mean return page.

A portfolio returning 12% with a 4% risk-free rate and 15% volatility has a Sharpe ratio of 0.53. As a rough guide, a ratio above 1 over several years is considered good. The Sharpe ratio penalizes all volatility, including upside surprises, and assumes returns are roughly normal. For a measure that uses only market risk, see the Treynor ratio; for return above the CAPM benchmark, see Jensen’s alpha.

Frequently asked questions

What is the Sharpe ratio formula?: Sharpe ratio = (R_p − R_f) ÷ σ_p: portfolio return minus the risk-free rate, divided by the standard deviation of the portfolio’s returns.
What is a good Sharpe ratio?: Above 1 is generally considered good, above 2 very good. Compare funds with similar strategies over the same period.
How do I annualize a monthly Sharpe ratio?: Multiply it by √12, which is the same as annualizing the excess return (× 12) and the volatility (× √12).
What is the difference between Sharpe and Treynor?: Sharpe divides by total risk (standard deviation); Treynor divides by market risk (beta).

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.