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Sharpe Ratio Calculator

Annualise a strategy's risk-adjusted return from its periodic mean return, volatility and the risk-free rate.

Quick answer: The Sharpe ratio measures excess return per unit of total volatility. This tool takes the mean and standard deviation of your periodic returns, subtracts the per-period risk-free rate from the mean, divides by the standard deviation, and scales the result by the square root of the number of periods per year to give an annualised figure. Higher is better; it rewards steady returns and penalises volatility.

Mean periodic return (%)Std deviation of return (%)

Risk-free rate, annual (%)Periods per year

How to use it

Enter the mean and standard deviation of your returns for one period (for daily data use daily figures) and the number of such periods in a year (about 252 trading days). The annual risk-free rate is converted to a per-period rate before subtraction. The output is the annualised Sharpe ratio. Convention: the risk-free rate is divided by periods per year to match the period of your returns.

Formula

Sharpe = ( ( Mean − Risk-free ÷ Periods ) ÷ Std deviation ) × √Periods

Mean and Std deviation are per-period percentages; the annual risk-free rate is divided by periods per year to bring it to the same period. Percentage units cancel in the ratio.

Frequently asked questions

Why divide the risk-free rate by periods?

Your returns are per-period (for example daily) but the risk-free rate is quoted annually. Dividing the annual rate by the number of periods per year brings it onto the same per-period basis before subtraction. This is a simple linear convention, adequate for illustration.

What is a good Sharpe ratio?

As a rough guide, a long-run Sharpe near or above one is often considered solid, but the number depends heavily on the strategy, period and costs. Backtested Sharpe ratios usually fall once real trading frictions are included.

Why annualise with the square root of periods?

Mean return scales linearly with the number of periods while standard deviation scales with the square root of the number of periods, assuming returns are roughly independent. The net effect is that the ratio scales by the square root of periods.

What periods per year should I use?

Use the count that matches your return period: about 252 for daily trading returns, 52 for weekly, 12 for monthly. Intraday strategies use far larger numbers.

Does Sharpe treat upside and downside the same?

Yes, and that is its main weakness. It penalises large gains as much as large losses because it uses total standard deviation. The Sortino ratio addresses this by measuring only downside deviation.

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