Return per unit of risk for a portfolio (Sharpe, Sortino) or a single trade (risk/reward ratio).
E.g. the 3-month Treasury bill yield for the same period.
Example Result
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Estimates for planning only; not financial, tax or investment advice. See our Disclaimer.
Two investments that both returned 8% are not equally good if one swung twice as violently to get there. The Sharpe ratio, introduced by William Sharpe, puts that into a single number: the return above a risk-free rate, divided by the standard deviation of returns. The Sortino ratio does the same but divides only by downside volatility. Enter an expected or historical annual return, the risk-free rate and the annualised standard deviation, and the calculator returns the Sharpe ratio, the excess return and — if you add downside deviation — the Sortino ratio. Traders asking a narrower question, "is this trade worth taking?", can switch to the trade mode: entry price, stop-loss and target give the risk/reward ratio and the win rate needed to break even.
Portfolio mode: enter the annual return, the risk-free rate and the annualised standard deviation; add downside deviation for the Sortino ratio.
Trade mode: enter the entry price, stop-loss and target.
Press Calculate and compare the result with alternatives measured the same way.
By O.E. — Partner, chairman of the board and CEO of a metal products manufacturer for 21 years; the company exports to 45 countries.
Drafted with AI assistance; calculations checked against primary sources and tested with the site's own code. About FlowUtil
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All inputs are annual percentages. Excess return = return − risk-free rate. Sharpe = excess return ÷ standard deviation; Sortino = excess return ÷ downside deviation, which measures only the returns below a target (here the risk-free rate). A portfolio whose volatility is mostly upside gets a Sortino ratio well above its Sharpe ratio. With 12% return, 4.5% risk-free, 15% SD and 8% downside: excess 7.50%, Sharpe 0.50, Sortino 0.94, coefficient of variation 15 ÷ 12 = 1.25.
| Symbol | Meaning |
|---|---|
| Sharpe | (Return − Risk-free) ÷ Standard deviation |
| Sortino | (Return − Risk-free) ÷ Downside deviation |
| CV | Standard deviation ÷ Return (shown only for a positive return) |
| Trade R:R | |Target − Entry| ÷ |Entry − Stop|, written 1 : x |
1A: 12% return, 15% volatility, 4.5% risk-free, 8% downside.
7.5 ÷ 15; 7.5 ÷ 8
Sharpe 0.50 · Sortino 0.94
Higher return, but paid less per unit of risk than B.
2B: 8% return, 6% volatility, 4.5% risk-free, 3.5% downside.
3.5 ÷ 6; 3.5 ÷ 3.5
Sharpe 0.58 · Sortino 1.00
An investor who wants A's 12% could in theory borrow to hold more of B — the comparison the Sharpe ratio is built for. Borrowing costs more than the risk-free rate, so the comparison flatters B a little.
3Trade: entry $100, stop $95, target $115.
Risk 5, reward 15; break-even 5 ÷ 20
Risk/reward 1 : 3.00 · break-even win rate 25.0%
The setup needs to work only one time in four before costs.
4Trade: entry $50, stop $47, target $54.
Risk 3, reward 4; 3 ÷ 7
1 : 1.33 · break-even 42.9%
A tighter target raises the win rate the trade needs.
The ratio depends on the period you measure it over, the risk-free rate you pick and whether the returns are realised or forecast; Sharpe himself stresses that it is not independent of the measurement interval. Use it to compare like with like — two funds over the same years, a strategy against its benchmark — not against a fixed scale. A negative result means the investment did worse than holding Treasury bills, for extra risk.
With monthly returns, compute the monthly Sharpe ratio and multiply by √12, or annualise the inputs first (monthly average × 12, monthly SD × √12). A monthly Sharpe of 0.20 becomes 0.20 × √12 ≈ 0.69. Both shortcuts assume returns are independent from month to month; strategies with smoothed or autocorrelated returns (private assets, some hedge funds) look better than they are after this scaling.
A 1 : 3 setup breaks even at a 25% win rate, a 1 : 1 setup at 50% — before commissions and slippage. The ratio says nothing about how likely the target is: a distant target is easy to write down and hard to reach. Size the position from the risk per share with the Position Size Calculator.