Mean Excess Return per Unit of Volatility
Sharpe = (mean portfolio return − mean risk-free return) / standard deviation of excess returns. With a constant risk-free rate, excess-return volatility equals portfolio-return volatility. A changing benchmark requires its own period-by-period differences.
Prepare Comparable Inputs
- Choose a common return frequency, currency, window, and fee treatment.
- Use arithmetic mean returns. CAGR describes compounded growth and is not a substitute for this numerator.
- Compute volatility from the matching excess-return series. Do not enter price-level standard deviation.
Monthly inputs produce a monthly ratio. This form does not annualize. Square-root-of-time scaling relies on assumptions including zero serial correlation; compounded returns and correlated observations complicate the conversion.
What the Number Leaves Out
The ratio does not isolate luck from skill or measure every risk. Tail losses, drawdown, liquidity, and sample uncertainty require separate checks. With negative excess return, adding volatility can move the ratio toward zero without improving the return; rankings need care.
Reference: William F. Sharpe, The Sharpe Ratio (1994), definitions and time dependence.
Frequently Asked Questions
What does this calculator compute?
It divides manually entered mean excess return by the standard deviation of excess returns. It does not fetch prices, estimate a return series, or annualize inputs.
Which units and period should I use?
Use percentage points for all three fields and matching frequency, currency, and estimation window. For historical data, use an arithmetic mean return, not CAGR. With a varying risk-free series, calculate the standard deviation of period-by-period excess returns first.
Is there a universal good Sharpe Ratio?
No quality grade is assigned. A positive ratio means the supplied mean return exceeds the benchmark; it does not prove skill, safety, or future performance. Compare consistently estimated ratios alongside sample size, drawdowns, and tail risk.
Why is zero volatility rejected?
A zero denominator makes the ratio undefined, even if excess return is also zero. Blank or non-finite inputs are not treated as valid observations.
Are inputs sent to a server?
This form calculates locally in your browser. It does not upload these figures to a market-data API or connect to a brokerage account.