Risk-adjusted return of your sample — with honest caveats.
Sharpe describes past risk-adjusted returns of the sample you feed it. High backtest Sharpes frequently collapse live — see our overfitting guides.
Educational tool only — not financial advice. Verify figures with your broker.
The Sharpe Ratio Calculator measures the risk-adjusted return of a return sample — how much average return you earned per unit of volatility, above the risk-free rate. It answers: for the returns I entered, how large was the reward relative to the ups and downs it took to get there? It grades the sample you feed it, not a future outcome.
Per-period Sharpe = (average return − risk-free return) ÷ standard deviation of returns. To annualize, that ratio is multiplied by the square root of the number of periods per year (for daily data, √252). Using excess return over the risk-free rate in the numerator is what makes it a reward-per-unit-of-risk measure.
As a rough convention an annualized Sharpe above 1 is often called good and above 2 very good, but a sharpe ratio calculator only reports the past sample you provide. High backtest values frequently shrink or vanish in live trading.
Annualizing puts samples measured at different frequencies (daily, weekly, monthly) on a common yearly scale so they can be compared. It multiplies the per-period Sharpe by the square root of periods per year.
Yes — it treats upside and downside volatility the same, and a short lucky sample can produce an inflated figure. It also does not capture rare large losses well, so it should never be read as proof of a durable edge.
Keep in mind: Sharpe describes the past risk-adjusted returns of the exact sample you feed it — high backtest Sharpes frequently collapse live, as our overfitting guides explain. It says nothing about future returns and can be inflated by a short or lucky sample.