Sharpe Ratio Calculator [Free Tool]
Measure how much excess return a strategy earns per unit of volatility. Find out whether the return came from skill or just from borrowing risk.
Disclaimer: Trading financial instruments involves risk, and everything on this page is provided for educational purposes only. Nothing here is financial advice or a recommendation to buy or sell any instrument.
Sharpe Ratio
0.56
Excess return per unit of risk
Annualized Sharpe
8.91
for daily returns
Mean Return / Period
0.40%
Std Dev / Period
0.71%
A Sharpe above 1 is generally good, above 2 is very good. It measures return per unit of volatility.
How is this calculated?
Sharpe = (mean return − risk-free rate) ÷ std dev of returns
Annualized = Sharpe × √(periods per year), where daily = √252, monthly = √12.
Read the full user guide
Every parameter, formula, and worked example — a complete reference for this tool.
What is the Sharpe ratio?
The Sharpe ratio measures return per unit of risk: the strategy's excess return over a risk-free rate, divided by its volatility. It answers the question that raw returns never do — was the money earned through actual skill, or just by borrowing a lot of risk? Two strategies can both return 20% a year while one is twice as volatile; the Sharpe ratio tells them apart in a single number. The calculator turns your return, risk-free rate, and volatility figures into that ratio.
Key concepts
Excess return
Return above the risk-free rate over the same period.
Volatility
The standard deviation of returns — the risk denominator.
Interpretation
Higher is better; above 1 is often considered good, above 2 very good.
A worked example with real numbers
- 1
Enter the strategy's return and the risk-free rate
Your strategy returned 15% last year, and the risk-free rate was 4%.
- 2
Subtract the risk-free rate
Excess return = 15% − 4% = 11%.
- 3
Divide by volatility
If the strategy's volatility was 10%, Sharpe = 11% ÷ 10% = 1.1.
- 4
Read the score
A Sharpe of 1.1 means the strategy earned 1.1 units of excess return per unit of risk — solid, and comparable against other strategies.
How to use it
Enter return and risk-free rate
The strategy return and the reference risk-free rate.
Enter volatility
The standard deviation of returns.
Read the Sharpe ratio
Excess return divided by volatility.
The formula, step by step
Sharpe
Sharpe = (Return − Risk-free) ÷ Volatility
Annualized figures should be annualized consistently.
Mistakes traders make
✗ Comparing Sharpe ratios across different time frequencies
✓A daily Sharpe is not comparable to an annual one unless annualized consistently with the square root of periods.
✗ Treating upside volatility as bad
✓Sharpe penalizes all volatility equally, so a strategy with big winners can score worse than one with quieter but weaker returns. Know the limitation.
✗ Reading a high Sharpe from a short track record as skill
✓A great few months produce a flattering ratio. Require a meaningful sample before trusting it.
When this tool fits — and when it does not
Use it when
- ✓Comparing strategies of similar frequency over the same period.
- ✓Judging whether returns are earned or simply borrowed risk.
- ✓As one input alongside drawdown and sample size in a full review.
Skip it when
- ✗Choosing a strategy purely on the highest Sharpe.
- ✗Comparing ratios computed on different bases or frequencies.
- ✗Assuming a normal distribution where trading returns are fat-tailed.
Practical tips that actually help
Annualize consistently
Daily numbers scale by √252 and monthly by √12. Mixing bases is the most common Sharpe mistake.
Pair it with drawdown
Sharpe hides the sequence of losses. A strong Sharpe with a deep drawdown can still be untradeable in practice.
Use it as a screen, then dig deeper
Sharpe is a fine first filter, but the decision needs the equity curve and the worst-case path, not just the ratio.
Related & next steps
Frequently asked questions
What is a good Sharpe ratio?▾
Above 1 is generally considered good and above 2 very good, but the number is only meaningful when comparing like-for-like over the same period and frequency.
What are Sharpe's limits?▾
It treats upside and downside volatility alike and assumes normality, which trading returns often violate.
Why is the risk-free rate subtracted?▾
To isolate the return earned beyond what you could get with no risk at all. Only the excess, not the raw return, represents reward for taking risk.
What happens to Sharpe when returns are lumpy?▾
The ratio can be flattered or punished depending on how volatility is measured. Because it penalizes all deviations equally, a strategy with low but steady gains can score higher than one with a few huge wins and quiet stretches.
Can I compare a daily Sharpe to an annual one directly?▾
No. Sharpe scales with the square root of the observation frequency, so a daily figure annualized with √252 is the conventional way to make comparisons meaningful.
Should I prefer a strategy purely on a higher Sharpe?▾
Not in isolation. Sharpe ignores drawdown sequence and tail risk, and a high value from a short track record can be noise. Use it alongside drawdown and sample size for a full picture.
Ready to validate your first strategy?
Put someone else's strategy — or your own idea — through the real data. Free to start, no card required.
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The Sharpe ratio is a standard performance metric; figures quality depends on accurate return and volatility inputs.
Disclaimer: The tools and content on this site are provided for educational purposes only and do not constitute investment advice. Trading and investing involve a substantial risk of loss, and past performance does not guarantee future results.