Risk-Adjusted Return Calculator

About this calculator

The Sharpe ratio, developed by Nobel laureate William Sharpe, measures risk-adjusted return as (portfolio return − risk-free rate) ÷ standard deviation of returns. The numerator, return minus the risk-free rate, is the portfolio's excess return — the reward earned above what you could get from a risk-free asset like a Treasury bill — and dividing it by volatility expresses that reward per unit of risk taken.

Portfolio managers, financial advisors, and fund rating services (including Morningstar) use the Sharpe ratio to compare investments that have different risk profiles on an equal footing: a fund returning 12% with high volatility can have a worse risk-adjusted score than a fund returning 8% with low volatility. A Sharpe ratio above 1 is generally considered good, above 2 very good, and above 3 excellent, though the right benchmark depends on the asset class and time horizon being compared.

This calculator takes your portfolio return, the risk-free rate, and the volatility (standard deviation) of returns, then returns both the excess return and the Sharpe ratio, so you can judge whether a portfolio's performance reflects genuine skill or simply higher risk-taking.