Sharpe Ratio: 15% Return, 4% Risk-Free, 10% Std Dev
A portfolio returning 15% with a 4% risk-free rate and 10% standard deviation produces an excellent Sharpe ratio of 1.10.
How to use this tool
- Enter the portfolio or investment return for the period.
- Enter the risk-free rate over the same period.
- Enter the standard deviation (volatility) of the returns.
- Read the Sharpe ratio and the excess return over the risk-free rate.
- Compare ratios across investments — higher is better risk-adjusted.
See how a high-return, low-volatility portfolio achieves a strong Sharpe ratio above 1.0.
Frequently asked questions
- What is the Sharpe ratio?
- It is a measure of risk-adjusted return: the excess return over the risk-free rate divided by the standard deviation of returns. Higher values indicate more return per unit of risk.
- What is a good Sharpe ratio?
- As a rough guide, below 1 is sub-par, around 1 is acceptable, 2 is very good, and 3 or higher is excellent. Reasonable values vary by asset class and time period.
- Why subtract the risk-free rate?
- Subtracting the risk-free rate isolates the return earned specifically for taking risk, so you are not rewarding an investment for returns you could have earned risk-free.
- What are the Sharpe ratio's limitations?
- It treats upside and downside volatility the same and assumes roughly normal returns, so it can understate risk for skewed or fat-tailed strategies. The Sortino ratio addresses downside risk specifically.