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Sharpe Ratio Formula

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Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations. Check FAQs

SR = \frac{R p - R f}{σp}

SR - Sharpe Ratio?R_p - Expected Portfolio Return?R_f - Risk Free Rate?σp - Portfolio Standard Deviation?

Sharpe Ratio Example

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Here is how the Sharpe Ratio equation looks like with Values.

Here is how the Sharpe Ratio equation looks like with Units.

Here is how the Sharpe Ratio equation looks like.

0.3571 = \frac{8 - 3}{14}

0.3571 = \frac{8 - 3}{14}

0.3571 = \frac{8 - 3}{14}

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Sharpe Ratio Solution

Follow our step by step solution on how to calculate Sharpe Ratio?

FIRST Step Consider the formula

SR = \frac{R p - R f}{σp}

Next Step Substitute values of Variables

∴

SR = \frac{8 - 3}{14}

Next Step Prepare to Evaluate

∴

SR = \frac{8 - 3}{14}

Next Step Evaluate

∴

SR = 0.357142857142857

LAST Step Rounding Answer

∴

SR = 0.3571

Sharpe Ratio Formula Elements

Variables

Sharpe Ratio

Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations.

Symbol: SR

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Sharpe Ratio

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.

Symbol: R_p

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Expected Portfolio Return

Risk Free Rate

The Risk Free Rate is the theoretical rate of return of an investment with zero risks.

Symbol: R_f

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Risk Free Rate

Portfolio Standard Deviation

Portfolio Standard Deviation is a measure of the dispersion of a set of data from its mean.

Symbol: σp

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Portfolio Standard Deviation

Other formulas in Important Formulas of Investment category

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CD = P0 Deposit \cdot {(1 + (\frac{r Annual}{n c}))}^{n c \cdot n t}

Go Compound Interest

FV = A \cdot {(1 + (\frac{i}{n}))}^{n \cdot T}

Go Capital Gains Yield

CGY = \frac{P c - P0}{P0}

Go Risk Premium

RP = ROI - Rf return

How to Evaluate Sharpe Ratio?

Sharpe Ratio evaluator uses Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation to evaluate 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 evaluate Sharpe Ratio using this online evaluator? To use this online evaluator for Sharpe Ratio, enter Expected Portfolio Return (R_p), Risk Free Rate (R_f) & Portfolio Standard Deviation (σp) and hit the calculate button.

FAQs on Sharpe Ratio

What is the formula to find Sharpe Ratio?

The formula of Sharpe Ratio is expressed as Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation. Here is an example- 0.357143 = (8-3)/14.

How to calculate Sharpe Ratio?

With Expected Portfolio Return (R_p), Risk Free Rate (R_f) & Portfolio Standard Deviation (σp) we can find Sharpe Ratio using the formula - Sharpe Ratio = (Expected Portfolio Return-Risk Free Rate)/Portfolio Standard Deviation.

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Sharpe Ratio Formula

Sharpe Ratio Example

Sharpe Ratio Solution

Sharpe Ratio Formula Elements

Other formulas in Important Formulas of Investment category

How to Evaluate Sharpe Ratio?

FAQs on Sharpe Ratio

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