## About This Tool

The online Sharpe Ratio Calculator is used to calculate the sharpe ratio.

## Sharpe Ratio

The Sharpe ratio, named after William Forsyth Sharpe, is a measure of the excess return (or risk premium) per unit of risk in an investment asset or a trading strategy. The Sharpe ratio is used to characterize how well the return of an asset compensates the investor for the risk taken, the higher the Sharpe ratio number the better. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.

Sharpe ratio is also called Sharpe index, Sharpe measure or reward-to-variability ratio.

## Calculating Sharpe Ratio

The Sharpe ratio is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is as following:

Sharpe Ratio = (Expected portfolio return - Risk free rate) / Portfolio standard deviation