Sharpe Ratio Calculator
Two strategies can post the same return while taking wildly different risk. The Sharpe ratio levels them: it measures how much return you earned per unit of volatility, above what cash would have paid. It's the standard way to compare strategies — and to spot a headline return that only came from taking big risk.
- • Sharpe = (annual return − risk-free rate) ÷ annual volatility.
- • Rough read: below 0 lost to cash · ~1 is good · ~2 very good · ~3+ is rare and worth double-checking.
Worked example: a 12% return with a 4% risk-free rate and 15% volatility gives (12 − 4) ÷ 15 = 0.53.
Sharpe assumes roughly-normal returns and penalises upside swings the same as downside ones, so it understates strategies with rare large gains and flatters those with hidden tail risk. A great backtest Sharpe usually shrinks live. Educational tool, not advice.
A calculator shows what a rule should do on paper. Whether a strategy actually beats simply buying and holding — costs on, losses shown, no hindsight — is a different question, and the only one that pays. Test one on real data, free, no sign-up.