Sharpe Ratio Calculator
Evaluate risk-adjusted return by comparing excess strategy profits to volatility standard deviation.
How the Calculation Works
Read parameters and compute total exposure: multiply order quantity by contract unit multiplier.
Evaluate terminal return at the selected target price using strict financial mathematical boundary logic.
Deduct upfront capital commitments, taxes, or net debits to produce final net profit or loss realization.
Calculation Formula
Example Calculation
24% annual return, 7% risk-free rate, 12% volatility.
A ratio of 1.42 indicates strong excess return generated per unit of volatility.
Assumptions & Parameters
- Return and risk-free rates must be annualized over identical time periods.
Frequently Asked Questions
What is the Sharpe ratio?
A metric that measures return generated in excess of the risk-free rate per unit of volatility.
What is a good Sharpe ratio?
Above 1.0 is considered good, above 1.5 is very good, and above 2.0 is considered world-class.
What is the risk-free rate in India?
Typically the yield on 91-day or 10-year Indian Government Treasury Bills (~6.5% to 7.0%).
What is a major limitation of the Sharpe ratio?
It treats upside volatility the same as downside volatility, penalizing strategies that experience sharp upward jumps.
How does Sortino ratio improve upon Sharpe?
Sortino only penalizes downside volatility, ignoring profitable upside swings.
Can a negative Sharpe ratio occur?
Yes, if strategy return is less than the risk-free rate.