Free tool

Sharpe ratio calculator

Q: What is a good Sharpe ratio?

As a rough guide, a Sharpe ratio below 1 is weak, 1 to 2 is decent, 2 to 3 is strong and above 3 is excellent (and worth scrutinising for overfitting). Sharpe measures excess return per unit of volatility: (return minus risk-free rate) divided by volatility.

Q: How is the Sharpe ratio calculated?

Sharpe ratio = (annualized portfolio return - annualized risk-free rate) / annualized volatility (standard deviation of returns). All three inputs must use the same period basis, usually annualized.

Enter your annualized return, the risk-free rate and your annualized volatility to get the Sharpe ratio instantly — with a plain-English read on whether it's weak, solid or suspiciously good.

Annualized return (%)

Risk-free rate (%)

Annualized volatility / std dev (%)

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Backtest a strategy free → Why a high Sharpe can lie

What is the Sharpe ratio?

The Sharpe ratio measures how much excess return a strategy earns for each unit of risk (volatility) it takes. It's the single most cited measure of risk-adjusted performance:

Sharpe = (Return − Risk-free rate) ÷ Volatility

What is a good Sharpe ratio?

< 1.0 — weak; the returns don't justify the swings.
1.0–2.0 — decent and realistic for a real, tradable edge.
2.0–3.0 — strong.
> 3.0 — excellent, and a red flag: on a backtest it usually means the strategy is overfit, the costs are unrealistic, or there's look-ahead bias.

The catch: a backtested Sharpe is easy to inflate

Tune enough parameters and you can manufacture a sky-high Sharpe on historical data that completely falls apart live. That's why a raw Sharpe is only a starting point. The honest version is the Deflated Sharpe ratio, which discounts your Sharpe for how many variations you tried — the more combinations you tested, the more luck is baked into the winner.

QUANTHEON Lab runs that haircut for you, alongside out-of-sample Walk-Forward and 1,000-path Monte-Carlo, and fuses them into one verdict: trustworthy or curve-fit.

FAQ

What is a good Sharpe ratio?

Below 1 is weak, 1–2 is decent, 2–3 is strong, above 3 is excellent — and on a backtest, suspicious. Always check it survives out-of-sample.

How is the Sharpe ratio calculated?

Sharpe = (annualized return − annualized risk-free rate) ÷ annualized volatility. Keep all three on the same (usually annualized) basis.

Why is my backtest Sharpe so high?

Often overfitting, unrealistic costs/slippage, or look-ahead bias. Re-test on data the optimizer never saw and apply a Deflated-Sharpe haircut before believing it.