Sharpe Ratio Table Template

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Sharpe Ratio Table Template

This Sharpe ratio table template demonstrates the calculation of the Sharpe ratio (using the arithmetic mean) given the expected portfolio return, risk-free rate, and standard deviation of the portfolio return.

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Sharpe Ratio Template Screenshot

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The Sharpe Ratio (or Sharpe Index) is commonly used to calculate the performance of an investment by adjusting for its risk.

The higher the ratio, the greater the return of portfolio relative to the risk taken, and thus, the better the investment. The ratio can be used to evaluate a single stock or investment, or an entire portfolio.

Sharpe Ratio Formula

Sharpe Ratio = (Rx – Rf) / StdDev Rx

where:

  • Rx = Expected portfolio return
  • Rf = Risk-free rate of return
  • StdDev Rx = Standard deviation of portfolio return / volatility

It’s all about reducing volatility.  If an investment had an annual return of only 10% but had zero volatility, it would have an infinite (or undefined) Sharpe Ratio.

Of course, it’s impossible to have zero volatility, even with a government bond (prices go up and down).  As volatility increases, the expected return has to go up significantly to compensate for that additional risk.

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