BizJourney
Home › Formulas › Sharpe ratio

How to calculate Sharpe ratio

The Sharpe ratio formula, with plain worked examples you can check yourself.

Sharpe ratio = (Rp − Rf) ÷ σ

Worked examples

Rp = 22% · Rf = 2% · σ = 20%Sharpe ratio = 1
Rp = 14% · Rf = 4% · σ = 10%Sharpe ratio = 1
Rp = 22% · Rf = 2% · σ = 10%Sharpe ratio = 2

How to use it

  1. Write down the values for each letter in the formula.
  2. Do the brackets first, then divide or multiply.
  3. Check the units before you compare results.
  4. Compare the answer with last period or with a competitor to see if it is good or bad.

This formula belongs to Investing & Returns.

Related terms

DividendBondHedgingArbitrageLeverageAsset allocation

Practice Sharpe ratio with real numbers

Quizzes, a CEO simulator, a real estate tycoon game and startup tools. Free to start, in 7 languages.

Play BizJourney free →