Sharpe Ratio Calculator

How the Sharpe ratio is calculated

The average day is the sum of the daily results divided by n, the number of days. The standard deviation is √(sum of squared differences from the average ÷ (n − 1)). Then:

Sharpe ratio = average day ÷ standard deviation × √(trading days per year)

William Sharpe's 1994 paper The Sharpe Ratio, read on 18 October 2026, gives the historic ratio as the average differential return divided by the standard deviation of those returns, with the spreadsheet formula AVERAGE ÷ STDEV, and states that the t-statistic equals that ratio times the square root of the number of returns.

Worked example: ten trading days

The calculator starts with ten hypothetical days of net P&L in USD, the same account the Sharpe ratio guide uses: +420, −310, +180, +260, −240, −90, +350, −380, +120, and −10.

1. Average day: +300 ÷ 10 = +30 USD.
2. Standard deviation: the squared differences from +30 add up to 710,600, and √(710,600 ÷ 9) = 280.99 USD.
3. Sharpe ratio: 30 ÷ 280.99 = 0.1068 a day, and 0.1068 × √252 = 1.69 annualized. With a divisor of 10 it is 1.79, and at 156 trading days a year it is 1.33.
4. t-statistic: 0.1068 × √10 = 0.34. Without day 1, the +420 USD day, the other nine days average −13.33 USD.

Why a spreadsheet can show a different figure

As of 18 October 2026, Excel's STDEV.S estimates a sample standard deviation with the n − 1 method, and STDEV.P treats the values as a whole population and divides by n. The calculator's main figure matches STDEV.S, and the divisor-n row matches STDEV.P. The gap shrinks as the number of days grows.

The risk-free rate

The calculator subtracts no risk-free rate. A risk-free rate is a percentage return, so it can only be subtracted from days measured as returns. With P&L in currency or R multiples, 0 is the consistent choice. If you enter daily returns as a percentage of the account, subtract the annual rate divided by your trading days per year from each day before you paste them.

What the calculator leaves out

An unusually good day widens the standard deviation as much as an unusually bad one, so the ratio penalizes both. The Sortino ratio divides by the losing days only. Neither ratio shows how deep the account fell between peaks, and annualizing assumes a year of days like the ones you entered. No threshold for a good ratio carries over to your own daily P&L: compare it with your earlier periods, calculated the same way.

In Tradeways, the Sharpe ratio widget calculates the same annualized figure at 252 trading days a year, with its default risk-free rate of 0, from the days with closed trades in the dashboard's scope, and shows the day count next to it. Use this calculator to check a figure from another tool or a period you have not imported.