Money Tools

Sharpe Ratio Calculator

Estimate a simplified Sharpe ratio from expected return, risk-free rate, and annual volatility.

Updated April 12, 2026
Free online tool
Planning and research use

Why this page exists

Risk-adjusted return is easier to talk through when expected return, the risk-free rate, and volatility turn into one readable Sharpe ratio instead of three separate assumptions. This calculator helps visitors estimate a simplified Sharpe ratio and keeps the excess-return math visible for quick screening.

Interactive tool

Run the estimate

Enter your numbers and read the result first, then use the sections below to understand what affects the outcome.

Calculator

Sharpe ratio calculator

Estimate a simplified Sharpe ratio from expected return, risk-free rate, and annual volatility.

Result

0.50 Sharpe ratio

Estimated Sharpe ratio based on excess return divided by annual volatility.

Sharpe ratio0.50

Excess return6.00%

Annual volatility12.00%

InterpretationLower risk-adjusted return

10.00% of expected return minus a 4.00% risk-free rate leaves 6.00% of excess return.
Dividing that excess return by 12.00% of volatility gives a Sharpe ratio near 0.50.
Use this as a quick risk-adjusted return screen only, because real portfolio construction, fees, time periods, and return distributions can all change the interpretation.

This is a planning metric, not investment advice. Real portfolio risk, return assumptions, and time periods can change the result substantially.

Planning note

Last updated April 12, 2026. Use this tool to compare scenarios and plan ahead, then confirm important details with the lender, employer, insurer, contractor, or other qualified provider involved in the final decision.

How it works

What the calculator is doing

Enter expected annual return, the risk-free rate, and annual volatility.

The calculator subtracts the risk-free rate from expected return to estimate excess return.

It divides excess return by volatility to estimate a simplified Sharpe ratio and adds a plain-language interpretation note.

Understanding your result

A Sharpe ratio is a quick planning metric, not investment advice or a full portfolio analysis. Assumed returns, the risk-free benchmark, and how volatility is measured can all change the result meaningfully.

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Examples

Ways people use this tool

Example scenarios help turn a quick estimate into a more useful comparison or planning step.

Compare two investment ideas on a risk-adjusted basis

A simplified Sharpe ratio can make it easier to compare whether higher expected return is also coming with proportionally higher risk.

Test how a change in volatility alters the picture

Keeping return expectations the same while changing volatility can show how risk-adjusted appeal shifts.

Use excess return as a quick screening metric

Breaking out the excess-return step makes it easier to see how much return is left after the risk-free benchmark is removed.

FAQ

Common questions

How is the Sharpe ratio calculated here?

The calculator subtracts the risk-free rate from expected return and then divides that excess return by annual volatility.

Why is this called a simplified Sharpe ratio?

Because the result depends entirely on the return, risk-free rate, and volatility assumptions entered, and it does not account for every portfolio detail.

Is a higher Sharpe ratio always better?

A higher Sharpe ratio usually points to stronger return per unit of risk in this simple framework, but it is still only one screening metric and not investment advice.

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Keep comparing

Use these related tools to compare nearby scenarios, check a second estimate, or keep narrowing down the right decision.

Money ToolsUpdated April 11, 2026