Sharpe Ratio Solution

STEP 0: Pre-Calculation Summary
Formula Used
Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation
SR = (Rp-Rf)/σp
This formula uses 4 Variables
Variables Used
Sharpe Ratio - Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations.
Expected Portfolio Return - The Expected Portfolio Return is the combination of the expected returns, or averages of probability distributions of possible returns, of all the assets in an investment portfolio.
Risk Free Rate - The Risk Free Rate is the theoretical rate of return of an investment with zero risks.
Portfolio Standard Deviation - Portfolio Standard Deviation is a measure of the dispersion of a set of data from its mean.
STEP 1: Convert Input(s) to Base Unit
Expected Portfolio Return: 8 --> No Conversion Required
Risk Free Rate: 3 --> No Conversion Required
Portfolio Standard Deviation: 14 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
SR = (Rp-Rf)/σp --> (8-3)/14
Evaluating ... ...
SR = 0.357142857142857
STEP 3: Convert Result to Output's Unit
0.357142857142857 --> No Conversion Required
FINAL ANSWER
0.357142857142857 0.357143 <-- Sharpe Ratio
(Calculation completed in 00.004 seconds)
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22 Investment Calculators

Portfolio Standard Deviation
​ Go Portfolio Standard Deviation = sqrt((Asset Weight)^2*Variance of Returns on Assets 1^2+(Asset Weight)^2*Variance of Returns on Assets 2^2+2*(Asset Weight*Asset Weight*Variance of Returns on Assets 1*Variance of Returns on Assets 2*Portfolio Correlation Coefficient))
Portfolio Variance
​ Go Portfolio Variance = (Asset Weight)^2*Variance of Returns on Assets 1^2+(Asset Weight)^2*Variance of Returns on Assets 2^2+2*(Asset Weight*Asset Weight*Variance of Returns on Assets 1*Variance of Returns on Assets 2*Portfolio Correlation Coefficient)
Jensen's Alpha
​ Go Jensen's Alpha = Annual Return on Investment-(Risk Free Interest Rate+Beta of the Portfolio*(Annual return of the market benchmark-Risk Free Interest Rate))
Compound Interest
​ Go Future Value of Investment = Principal Investment Amount*(1+(Annual Interest Rate/Number of Periods))^(Number of Periods*Number of Years Money is Invested)
Certificate of Deposit
​ Go Certificate of Deposit = Initial Deposit Amount*(1+(Annual Nominal Interest Rate/Compounding Periods))^(Compounding Periods*Number of Years)
Actuarial Method Unearned Interest Loan
​ Go Actuarial Method Unearned Interest Loan = (Number of Remaining Monthly Payments*Monthly Payment*Annual Percentage Rate)/(100+Annual Percentage Rate)
Equivalent Annual Annuity
​ Go Equivalent Annuity Cashflow = (Rate per Period*(Net Present Value (NPV)))/(1-(1+Rate per Period)^-Number of Periods)
Portfolio Expected Return
​ Go Portfolio Expected Return = Asset Weight*(Expected Return on Asset 1)+Asset Weight*(Expected Return on Asset 2)
Total Stock Return
​ Go Total Stock Return = ((Ending Stock Price-Initial Stock Price)+Dividend)/Initial Stock Price
Annuity Payment
​ Go Annuity Payment = (Rate per Period*Present Value)/(1-(1+Rate per Period)^-Number of Periods)
Value at Risk
​ Go Value at Risk = -Mean of Profit and Loss+Standard Deviation of Profit and Loss*Standard Normal Variate
Profitability Index
​ Go Profitability Index (PI) = (Net Present Value (NPV)+Initial Investment)/Initial Investment
Sharpe Ratio
​ Go Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation
Capital Gains Yield
​ Go Capital Gains Yield = (Current Stock Price-Initial Stock Price)/Initial Stock Price
Treynor Ratio
​ Go Treynor's Ratio = (Expected Portfolio Return-Risk Free Rate)/Beta of the Portfolio
Average Return on Investment
​ Go Average Return = modulus(Total Value of Return)/Total Number of Returns
Information Ratio
​ Go Information Ratio = (Portfolio Return-Benchmark Return)/Tracking Error
Rate of Return
​ Go Rate of Return = ((Current Value-Original Value)/Original Value)*100
Straight Line Depreciation
​ Go Straight Line Depreciation = (Asset's Cost-Salvage)/Life
Portfolio Turnover Rate
​ Go Porfolio Turnover Rate = (Total Sales and Purchases of Shares/Average Net Assets)*100
Real Rate of Return
​ Go Real Rate of Return = ((1+Nominal Rate)/(1+Inflation Rate))-1
Risk Premium
​ Go Risk Premium = Return on Investment (ROI)-Risk Free Return

Sharpe Ratio Formula

Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation
SR = (Rp-Rf)/σp

Significance of Sharpe Ratio

Sharpe ratio indicates investors’ desire to earn returns which are higher than those provided by risk-free instruments like treasury bills. As Sharpe ratio is based on standard deviation which in turn is a measure of total risk inherent in an investment, Sharpe ratio indicates the degree of returns generated by an investment after taking into account all kinds of risks. It is the most useful ratio to determine the performance of a fund and you, as an investor, need to know its importance.

How to Calculate Sharpe Ratio?

Sharpe Ratio calculator uses Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation to calculate the Sharpe Ratio, Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations. Sharpe Ratio is denoted by SR symbol.

How to calculate Sharpe Ratio using this online calculator? To use this online calculator for Sharpe Ratio, enter Expected Portfolio Return (Rp), Risk Free Rate (Rf) & Portfolio Standard Deviation (σp) and hit the calculate button. Here is how the Sharpe Ratio calculation can be explained with given input values -> 0.357143 = (8-3)/14.

FAQ

What is Sharpe Ratio?
Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations and is represented as SR = (Rp-Rf)/σp or Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation. The Expected Portfolio Return is the combination of the expected returns, or averages of probability distributions of possible returns, of all the assets in an investment portfolio, The Risk Free Rate is the theoretical rate of return of an investment with zero risks & Portfolio Standard Deviation is a measure of the dispersion of a set of data from its mean.
How to calculate Sharpe Ratio?
Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations is calculated using Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation. To calculate Sharpe Ratio, you need Expected Portfolio Return (Rp), Risk Free Rate (Rf) & Portfolio Standard Deviation (σp). With our tool, you need to enter the respective value for Expected Portfolio Return, Risk Free Rate & Portfolio Standard Deviation and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.
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