Sharpe Ratio Calculator

Measure risk-adjusted return using portfolio return, risk-free rate, and volatility.

Risk-adjusted return inputs

Compare portfolio return with risk-free rate and volatility to estimate the Sharpe ratio.

Portfolio return

Risk-free rate

Volatility

Benchmark return

Benchmark vol.

Sharpe ratio

0.5

Positive but modest

Excess return

Benchmark Sharpe

0.357

Active return

+3%

Volatility gap

+2%

Portfolio volatility minus benchmark volatility.

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What is the Sharpe ratio?

The Sharpe ratio measures excess return per unit of volatility. It was developed by William Sharpe in 1966 and is widely used to compare portfolios with different risk levels.

Formula: Sharpe ratio = (portfolio return - risk-free rate) / volatility. In Korea, the risk-free rate is often proxied by the 3-year Korean treasury yield, around 3% to 4% in the 2025 reference used by the source.

Interpretation

Grade bands

S grade: 3.0 or higher, top hedge-fund level.
A grade: 2.0 to 3.0, excellent.
B grade: 1.0 to 2.0, good.
C grade: 0.5 to 1.0, ordinary.
D grade: 0 to 0.5, weak.
F grade: negative, worse than the risk-free asset after risk adjustment.

Why return alone is not enough

Fund A with 15% return and 20% volatility may have Sharpe about 0.5 if the risk-free rate is 5%. Fund B with 12% return and 10% volatility has Sharpe about 0.9. Even though Fund A has a higher headline return, Fund B is more efficient for the volatility taken.

Related risk metrics and cautions

Metrics to compare together

Sortino ratio uses downside volatility only, so it can better distinguish harmful volatility from upside volatility.
VaR estimates maximum loss at a given confidence level, often 95%.
Alpha measures excess return versus a benchmark, while beta measures market sensitivity. Beta above 1 means the portfolio moves more than the market.
The calculator can use monthly return data or summary return and volatility inputs; the Korean guide requires at least one month of data when entering returns directly.

Limits of the Sharpe ratio

Results are highly period-sensitive, so compare funds over the same window.
The classic ratio assumes volatility is a reasonable risk proxy and does not fully capture tail risk or non-normal distributions.
Use Sharpe together with Sortino, maximum drawdown, VaR, alpha, beta, and qualitative portfolio review.