Portfolio Sharpe Ratio
Calculator

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Portfolio Sharpe Ratio with Correlations

The Sharpe Ratio is a critical metric for understanding risk-adjusted returns. It measures the excess return of an investment per unit of volatility (risk). This tool allows you to optimize your asset allocation by accounting for the correlation between different investments.

Calculation Formulas

Sharpe Ratio

(Rₚ - Rf) / σₚ

Portfolio Volatility (σₚ)

√( Σwᵢwⱼσᵢσⱼρᵢⱼ )

RₚPortfolio Return
RfRisk-Free Rate
σₚTotal Portfolio Volatility
wAsset Weight
σAsset Std Dev
ρCorrelation

Portfolio Assets

100.0%

Current 10-year Treasury yield (typically 3-5%)

Portfolio Sharpe Ratio

0.400
Fair - Consider Alternatives

Portfolio Metrics

Expected Return
10.00%
Portfolio Volatility
15.00%
Excess Return
6.00%

Interpreting Your Score

< 0:Portfolio underperforms risk-free investments
0 - 0.7:Suboptimal - Consider rebalancing
0.7 - 1.0:Acceptable risk-return tradeoff
1.0 - 2.0:Good - Strong risk-adjusted returns
> 2.0:Excellent - Outstanding performance

Correlation Matters

Assets with low or negative correlation reduce portfolio risk through diversification. The calculator accounts for these relationships to give you accurate risk metrics.

Portfolio Benchmarks

• S&P 500: 0.6 - 0.9

• 60/40 Portfolio: 0.5 - 0.8

• Diversified Global: 0.6 - 1.0

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Calculations are for educational purposes only and do not constitute investment advice.