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MasterMath

Sharpe Ratio Calculator

Enter a series of returns and get the Sharpe ratio, which measures return per unit of risk, alongside the Sortino, which only counts the falls.

Currency and number format for

Sharpe ratio

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Sharpe ratio—
Sortino ratio—
Reading—
Annualised return—
Annualised volatility—
Downside volatility only—

How this was worked out

    Indicative result. Nothing here is investment advice. A Sharpe ratio computed on a short series is close to meaningless.

    The formula

    Sharpe = (return − risk-free rate) ÷ volatility

    Where it comes from

    The Sharpe ratio divides the return you earned above a risk-free rate by how much the returns bounced around. It answers whether a strategy is genuinely good or merely volatile, since any return can be manufactured by taking more risk.

    How to work it out by hand

    1. Work out the average return per period and annualise it
    2. Work out the standard deviation of those returns and annualise it too
    3. Subtract the risk-free rate from the annualised return
    4. Divide by the annualised volatility

    What is worth knowing

    The Sharpe ratio treats upside and downside movement as equally bad, which is why the Sortino exists: it divides by downside deviation only, and rewards a strategy whose surprises are mostly pleasant. Both have the same fundamental weakness — they assume returns are roughly normally distributed, and financial returns are not. Strategies that make small gains consistently and lose enormously once in a decade post superb Sharpe ratios right up until the decade ends. Read either figure alongside the maximum drawdown and the length of the sample: below about three years of data, the number is noise.

    Frequently asked questions

    What is a good Sharpe ratio?

    Above 1 is generally considered good and above 2 excellent, but the figure is only comparable between strategies measured over the same period and frequency.

    What is the difference between Sharpe and Sortino?

    Sharpe penalises all volatility; Sortino only penalises downside volatility. A strategy with large upside surprises scores better on Sortino.

    Why does the period frequency matter?

    Because annualising scales the volatility by the square root of the number of periods. Daily and monthly returns give different answers if you get the setting wrong.

    Can the Sharpe ratio be gamed?

    Easily. Strategies that sell tail risk produce steady small gains and rare huge losses, which looks superb on Sharpe until the rare event happens.