Portfolio Sharpe Ratio Calculator
Quantify how much excess return your portfolio earns per unit of risk, then experiment with multi-asset weights to see how diversification shifts the risk–return trade-off.
Sharpe ratio
0.43
Excess return
6.00%
Expected return
10.0%
Volatility (σ)
14.0%
Portfolio parameters
Risk–return spectrum & capital allocation line
The dashed line is the capital allocation line: every mix of the risk-free asset and the risky portfolio lies on it, and its slope is the Sharpe ratio itself.
Multi-asset allocation
Adjust the weights to see how diversification shifts the risk-adjusted return — the return and volatility sliders above update automatically.
Allocated mix
8.0% return · σ 11.3% · Sharpe 0.35
E(R) 10% · σ 16%
E(R) 9% · σ 18%
E(R) 4.5% · σ 6%
E(R) 4.0% · σ 0%
Sharpe ratios use annualized figures; asset assumptions are illustrative market estimates, not forecasts or investment advice. Your inputs are stored in the URL so you can bookmark or share this scenario.
How the Sharpe ratio is calculated
The Sharpe ratio, introduced by William F. Sharpe in 1966, standardizes a portfolio's excess return by its volatility, making risk-adjusted performance comparable across strategies.
Sharpe ratio
S = (Rₚ − R_f) ÷ σₚ
- Rₚ — expected portfolio return
- R_f — risk-free rate
- σₚ — portfolio volatility (standard deviation)
Excess return
Excess = Rₚ − R_f
The return earned above what a risk-free asset (such as T-bills) would pay.
Portfolio return from weights
Rₚ = Σ wᵢ × rᵢ
The weighted average of each asset's expected return rᵢ with allocation weight wᵢ.
Portfolio variance
σₚ² = Σᵢ Σⱼ wᵢ wⱼ σᵢ σⱼ ρᵢⱼ
Volatility depends on each asset's risk σᵢ and the correlations ρᵢⱼ between asset pairs — which is why diversification lowers risk.
Capital allocation line
E(R_c) = R_f + S × σ_c
Every mix of the risk-free asset and the risky portfolio lies on this line; its slope is the Sharpe ratio itself.
Worked example
With Rₚ = 10%, R_f = 4% and σₚ = 14%:
S = (10 − 4) ÷ 14 = 0.43
The portfolio earns roughly 0.43% of excess return per 1% of volatility — a "poor" risk-adjusted outcome.
Interpreting the Sharpe ratio
| Sharpe ratio | Interpretation |
|---|---|
| < 0 | Negative — the portfolio underperforms the risk-free asset |
| 0 – 0.99 | Poor — excess return does not justify the risk taken |
| 1 – 1.99 | Good — acceptable risk-adjusted performance |
| 2 – 2.99 | Very good — strong return per unit of risk |
| ≥ 3 | Excellent — outstanding risk-adjusted performance |