Sharpe ratio: Reading a Sharpe Ratio Alongside Its Inputs
The Sharpe ratio scales excess return by total return variability. Comparing two results is meaningful only when their return periods and volatility conventions are consistent.
Use the Sharpe ratio Calculator to enter your own figures and compare the result with the worked example below.
Sharpe ratio formula
Sharpe = (Portfolio return − Risk-free rate) ÷ Portfolio standard deviation
Worked example
| Item | Example value |
|---|---|
| Portfolio return | 10 % |
| Risk-free rate | 3 % |
| Standard deviation | 15 % |
| Sharpe ratio | 0.466667 |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
A short history or unusual return distribution can distort interpretation. The ratio does not describe every type of downside risk.
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Method and further reading
The example follows the FinMathly calculator method. For broader background, see Investor.gov: Introduction to investing. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
Featured photograph: Pexels.