Sharpe Ratio
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Excess Return
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Rating
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When Should You Use This?
Use the Sharpe Ratio to compare different investments or strategies on a risk-adjusted basis. A higher Sharpe means better returns per unit of risk. It's the most widely used performance metric in finance.
How It Works
1
Enter Returns
Input your portfolio or strategy's annualized return and the current risk-free rate (e.g., Treasury bill yield).
2
Enter Volatility
Input the annualized standard deviation of your portfolio's returns. Your broker may provide this.
3
Read the Rating
A Sharpe above 1.0 is good, above 2.0 is excellent. Below 0.5 means you're not being compensated enough for the risk.
Frequently Asked Questions
Below 0.5 is poor, 0.5-1.0 is adequate, 1.0-2.0 is good, and above 2.0 is excellent. The S&P 500's long-term Sharpe ratio is about 0.4-0.5.
Use the current yield on short-term government bonds (e.g., 3-month Treasury bill). As of 2026, this is approximately 4-5%.
Sharpe penalizes all volatility equally (up and down). Sortino only penalizes downside volatility, which many traders prefer since upside volatility is desirable.
Yes. A negative Sharpe means your portfolio underperformed the risk-free rate. You would have been better off in Treasury bills.
No. Sharpe measures past risk-adjusted returns. Future returns may differ. Also, strategies with high Sharpe ratios may carry hidden tail risks (like selling options).