Risk vs. Return Calculator 🎯

Compare two investment options based on their **risk (Volatility)** and **expected return**. Use the Sharpe Ratio to find the best risk-adjusted investment.

Comparison Parameters

Risk-Free Rate (%):

The return of a truly safe investment (e.g., U.S. Treasury Bills).

Portfolio 1

Expected Annual Return (%):

Annual Volatility/Standard Deviation (%):

Portfolio 2

Expected Annual Return (%):

Annual Volatility/Standard Deviation (%):

The Sharpe Ratio: Risk-Adjusted Return

The Sharpe Ratio is a key metric in finance that measures the performance of an investment compared to a risk-free asset, after adjusting for its risk. It is a fundamental tool for comparing two investments.

The Formula

Sharpe Ratio = ( Rₚ - Rƒ ) / σₚ
            
Where:
Rₚ = Expected Portfolio Return
Rƒ = Risk-Free Rate of Return
σₚ = Standard Deviation of the Portfolio's Return (Risk/Volatility)

A higher Sharpe Ratio is always better. It means the portfolio is generating more return for each unit of risk (volatility) it takes on. A ratio of 1.0 is generally considered good, 2.0 is very good, and 3.0 or higher is excellent.