Sharpe Ratio Calculator

The Sharpe Ratio measures risk-adjusted return, how much excess return a strategy generates per unit of volatility (risk) taken on. It's calculated as the strategy's average return minus the risk-free rate, divided by the standard deviation of returns.

As a general guide, a Sharpe Ratio above 1.0 is considered acceptable, above 2.0 is very good, and above 3.0 is excellent. Below 1.0 suggests the returns may not adequately compensate for the volatility involved, though context and strategy type matter.

South African traders commonly use the current SARB repo rate or a short-term SA government bond yield as a proxy for the risk-free rate. This changes over time, verify the current rate directly before relying on a specific figure.

Standard deviation captures how much your returns fluctuate around their average, a proxy for volatility and risk. Two strategies with identical average returns but different standard deviations have very different risk profiles, the Sharpe Ratio captures this by dividing by it.

Generally yes for comparing strategies with similar characteristics, but the Sharpe Ratio has limitations, it treats upside and downside volatility identically, which can penalise strategies with occasional large wins. Metrics like the Sortino Ratio address this by only counting downside volatility.

A Sharpe Ratio above 1 is generally considered acceptable, above 2 is often viewed as very good, and above 3 as excellent, though benchmarks can vary somewhat depending on the specific strategy type and market being traded.

Yes, if those returns come with proportionally high volatility, the Sharpe Ratio specifically measures return relative to volatility (risk-adjusted return), not raw returns alone, a volatile strategy can show a lower Sharpe Ratio despite strong headline returns.

Not directly, Sharpe Ratio uses standard deviation of returns as its risk measure, which is related to but not identical to maximum drawdown, for a drawdown-specific view, check our dedicated Drawdown Calculator alongside this one.

A common reference for South African calculations is a current short-term government bond or money market yield, representing a realistic 'safe' return baseline your trading returns are being compared against.

More return observations (monthly or quarterly data over a longer period) generally produce a more statistically reliable figure, calculating this from only a handful of data points can produce a misleadingly volatile or skewed result.