📈 Performance
Sharpe Ratio Calculator
Measure the quality of your returns — not just the size. The Sharpe ratio tells you how much return you earn per unit of risk taken.
What is the Sharpe ratio and why does it matter?
The Sharpe ratio measures risk-adjusted return. A strategy returning 20% annually with a Sharpe of 0.4 is worse than one returning 12% with a Sharpe of 1.8 — because the second delivers more return per unit of volatility. Hedge funds, prop firms, and institutional investors use it as a primary strategy evaluation metric.
The formula
Sharpe = (Mean Monthly Return – Risk-free Rate) ÷ Std Dev × √12
The √12 factor annualises the ratio from monthly data. Risk-free rate is typically the 1-month government bond yield (approx 0.4–0.5% monthly in 2024).
How to interpret the number
- Below 0: Your strategy loses money after accounting for risk. Stop trading it live.
- 0 – 1.0: Marginal. Returns exist but volatility is high relative to reward.
- 1.0 – 2.0: Good. Most professional funds target this range.
- Above 2.0: Excellent — or suspicious with too few data points.
Pro tip: Enter at least 12 months of live trading returns for a meaningful Sharpe. Backtested Sharpe ratios are almost always inflated due to curve-fitting. Live performance is the only truth.