A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate – such as that of
the 10-year U.S. Treasury bond – from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns.
On StockTrak, we provide an annualized Sharpe Ratio as part of our session rankings. The Sharpe Ratio on StockTrak is calculated by:
- Calculating your average daily portfolio return, excluding weekends.
- This can be found from your “Graph My Portfolio” page, exporting your historical performance.
- Subtracting the daily Risk-Free rate of your portfolio. By default, this is the “interest earned on cash” (3% annual interest for most sessions)
- Dividing by the standard deviation of your daily portfolio returns, excluding weekends
- And annualizing this based on 252 trading days per year
(Average daily portfolio return – Risk Free rate) / (Standard deviation of daily portfolio returns) * 252^0.5
Note: When exporting your portfolio historical returns, we include weekends by default. However, weekends are excluded from the Sharpe Ratio calculation. We also only begin calculating the Sharpe Ratio 5 trading days after your first trade.