In this article, we will explain how to calculate the** Sharpe Ratio** in Excel.

## Basics of the Sharpe Ratio

The **Sharpe Ratio**, also known as the **Sharpe Index**, is used to calculate the performance of an investment considering all the related risks. It compares investments of different risk profiles against each other.

To calculate the **Sharpe Ratio**, we use the following formula:

`Sharpe Ratio = (Rp - Rf) / Ꝺ`

Where,

** Rp** = Expected Rate of Return

** Rf** = Risk-Free Rate of Return

** Ꝺ** = Standard Deviation

A higher value indicates a better investment, representing greater outcomes for the portfolio compared to the inherent risk.

## How to Calculate the Sharpe Ratio in Excel: 2 Common Cases

### Example 1 – Using a Formula to Calculate the Sharpe Ratio with Known Values

When the values are known, we can simply calculate the **Sharpe Ratio **by putting the values in the equation.

Here, we have a dataset with a given **Expected Rate of Return**, **Risk Free Rate of Return**, and **Standard Deviation**. We can apply the formula above to calculate the **Shape Ratio**.

**Steps**:

- Select an output cell for the
**Sharpe Ratio**(i.e.**C9**). - Input the following formula in cell
**C9**:

`=(C4-C5)/C6`

Where,

** C4** = **Expected Rate of Return
**

**C5**=

**Risk-Free Rate of Return**

**C6**=

**Standard Deviation**

- Press
**ENTER**.

Thus, we can easily calculate the **Sharpe Ratio**.

**Read More: **How to Calculate Average Ratio in Excel

### Example 2 – Sharpe Ratio Calculation Based on Yearly Returns

We can also calculate the **Sharpe Ratio **considering the previous years’ records. Generally, when calculating the **Sharpe Ratio** based on years, a dataset with an **Actual Rate of Return**, **Risk Free Rate of Return **will be provided.

**Actual Rate of Return **means the change in percentage of the actual investment, and **Risk Free Rate of Return **means the hypothetical rate of return if there was no risk.

Let’s calculate the **Sharpe Ratio **for the dataset above.

**Steps:**

- Create an additional column named
**Excess Return**.

- In cell
**E5**, enter the following formula to calculate the**Excess Return**:

`=C5-D5`

Where,

** C5** = **Actual Rate of Return
**

**D5**=

**Risk-Free Rate of Return**

- Press
**ENTER**.

- Use the
**Fill Handle**to**AutoFill**the rest of the cells below. - In cell
**D11**, enter the following formula to calculate the**Average Rate of Return**:

`=AVERAGE(C5:C9)`

Where the mean value of the cells **C5:C9 **is calculated.

- Press
**ENTER**.

- Enter the following formula to calculate the
**Standard Deviation**from the**Excess Return**:

`=STDEV(E5:E9)`

- Press
**ENTER**.

- Finally, in cell
**D13**, use the following formula to calculate the**Sharpe Ratio**:

`=D11/D12`

Where,

** D11 **= **Average Rate of Return**

** D12 **= **Standard Deviation**

- Press
**ENTER**to return our desired output.

**Read More: **How to Calculate Ratio of 3 Numbers in Excel

## Sharpe Ratio Calculator

We have created a **Sharpe Ratio Calculator**, which you will find within the provided practice workbook. Simply input the required variables to obtain the **Sharpe Ratio**.

**Download Practice Workbook**

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