Sharpe Ratio Calculator
Calculate and compare risk-adjusted returns for two portfolios. Professional tool for analyzing excess return per unit of volatility.
About
Professional investors prioritize risk-adjusted returns over absolute gains. A portfolio generating 20% returns with extreme volatility often poses more danger than a stable 10% return asset. The Sharpe Ratio quantifies this trade-off by measuring the excess return per unit of deviation. Fund managers use this metric to determine if investment performance is due to smart decisions or excessive risk taking. Accurate calculation requires precise annualized volatility inputs and a benchmark risk-free rate.
This tool facilitates side-by-side comparison of two assets. It highlights the superior investment vehicle based on efficiency rather than raw profit. Understanding these ratios helps in constructing balanced portfolios that withstand market turbulence.
Formulas
The Sharpe Ratio S is defined as the difference between the portfolio return Rp and the risk-free rate Rf divided by the standard deviation σp.
Where Rp is the expected portfolio return and σp represents portfolio volatility.
Reference Data
| Asset Class | Annual Return (Avg) | Volatility (Std Dev) | Risk-Free Rate | Sharpe Ratio |
|---|---|---|---|---|
| S&P 500 (Historical) | 10.5% | 15.0% | 3.5% | 0.47 |
| US Treasury Bonds | 5.2% | 4.0% | 3.5% | 0.43 |
| Emerging Markets | 12.8% | 22.0% | 3.5% | 0.42 |
| Corporate Bonds (IG) | 6.1% | 7.5% | 3.5% | 0.35 |
| Gold | 7.8% | 16.0% | 3.5% | 0.27 |
| Real Estate (REITs) | 11.2% | 19.0% | 3.5% | 0.41 |
| Bitcoin (Cyclical) | 50.0% | 80.0% | 3.5% | 0.58 |
| Hedge Fund Index | 8.5% | 6.5% | 3.5% | 0.77 |