Calculate Sharpe ratios to evaluate risk-adjusted returns
for equity investments over 1, 3, and 5 year periods
The Sharpe ratio is a measure of risk-adjusted return developed by Nobel laureate William Sharpe. It helps investors understand how much excess return they receive for the extra volatility endured by holding a riskier asset compared to risk-free investments (like Treasury bonds).
Formula: Sharpe Ratio = (Return - Risk-Free Rate) / Volatility
A higher ratio means better compensation for the risk taken.
This calculator uses professional-grade methods:
Why we differ from Yahoo Finance: Yahoo uses 0% risk-free rate (simplified for retail), while we use actual Treasury rates for accurate excess return measurement. This makes our Sharpe ratios lower but more academically sound.