Sharpe Ratio Calculator
The Sharpe Ratio Calculator is a tool designed to calculate the Sharpe ratio, a key measure of an investment's risk-adjusted return. It helps investors understand how well an investment performs relative to its risk. The Sharpe ratio considers both return and volatility, offering a clearer picture of investment performance.
Sharpe Ratio Calculator
What is Sharpe Ratio Calculator?
The Sharpe Ratio Calculator is a tool that helps investors calculate the Sharpe ratio, a measure used to evaluate the risk-adjusted return of an investment or portfolio. The Sharpe ratio compares the excess return of an investment over the risk-free rate to its volatility, providing insights into the potential return for each unit of risk.
How to Use Sharpe Ratio Calculator?
To use the Sharpe Ratio Calculator, input the average return of the investment, the risk-free rate, and the standard deviation (volatility) of the investment. Click "Calculate Sharpe Ratio," and the calculator will output the Sharpe ratio, indicating how well the investment is performing relative to its risk.
Formula of Sharpe Ratio Calculator
The formula used to calculate the Sharpe Ratio is:
Sharpe Ratio = (Average Return - Risk-Free Rate) / Standard Deviation
Advantages of Sharpe Ratio Calculator
- Helps assess the risk-adjusted return of an investment, making it easier to compare different investments.
- Provides a clear indication of the return generated per unit of risk taken.
- Useful for portfolio managers, analysts, and individual investors to evaluate investment performance.
- Easy-to-use with just three input fields for quick calculations.
Disadvantages of Sharpe Ratio Calculator
- Does not account for all types of risk, particularly non-systematic or unsystematic risk.
- May be misleading if the standard deviation does not reflect the actual risk of the investment.
- Assumes that returns are normally distributed, which may not always be the case in real-world scenarios.