English

# Learn How to Calculate Sharpe Ratio - Tutorial

## How to Calculate Sharpe Ratio - Definition, Formula, Example

#### Definition:

It is a method, which is used to measure the fund's risk-adjusted return on an investment. This tutorial explains how to calculate the Sharpe Ratio S(x).

#### Formula:

S(x) = (Expected portfolio return - Risk free rate) / Portfolio standard deviation Where, S(x) = Sharpe Ratio
##### Example :

A manager generates a return of 15% with the risk free-rate of 5%, and a manager's portfolio has a standard deviation of 8%, then find the sharpe ratio for manager portfolio?

##### Given,

Expected portfolio return= 15%, Risk free rate= 5% Portfolio standard deviation = 8%

S(x)

##### Solution :

Substitute the given values in the formula,

 S(x) = (Expected portfolio return - Risk free rate) / Portfolio standard deviation = (15-5)/8 = (10)/8 = 1.25

#### Related Calculator:

Simple tutorial on Sharpe Ratio with definition, formula and example to learn online.