This calculator helps investors and finance professionals to measure the performance of an investment by adjusting for its risk. The Sharpe Ratio is a valuable tool for comparing the risk-adjusted returns of different investments.
Calculator
Results
Data Source and Methodology
Tutti i calcoli si basano rigorosamente sulle formule e sui dati forniti da fonti affidabili nel campo della finanza. Consult the Corporate Finance Institute for more details.
The Formula Explained
The Sharpe Ratio is calculated using the formula: \( S = \frac{R_e - R_f}{\sigma} \)
Glossary of Terms
- Expected Return (Re): The anticipated return on an investment.
- Risk-Free Rate (Rf): The return on a risk-free investment, such as government bonds.
- Standard Deviation (σ): A measure of the investment's volatility.
- Sharpe Ratio (S): The risk-adjusted return of the investment.
Frequently Asked Questions (FAQ)
What is a good Sharpe Ratio? A Sharpe Ratio above 1 is considered good, above 2 is very good, and above 3 is excellent.
How is the Sharpe Ratio used in portfolio management? It helps in understanding the return of an investment compared to its risk, aiding in better portfolio diversification.
Can the Sharpe Ratio be negative? Yes, a negative Sharpe Ratio indicates that a risk-free asset would perform better than the investment being evaluated.
Why is the risk-free rate used? It serves as a benchmark to compare the return of the investment against a risk-free return.
What does a Sharpe Ratio of 0 indicate? It means that the investment's return is equal to the risk-free rate.