Risk-Adjusted Return Comparison Calculator
Earning high returns is easy if you take catastrophic risks. Risk-adjusted return metrics quantify how much excess return an investment generated for each unit of volatility or downside risk endured.
Enter Parameters
Adjust inputs to calculate real-time estimates
Showing an initial illustrative scenario using standard parameters. Adjust the input fields on the left and click Calculate now to evaluate your specific numbers.
Calculation Summary
Sharpe Ratio is 0.55 and Sortino Ratio is 0.87 against a 4.25% risk-free rate.
Sharpe ratio (total risk)
0.55
Sortino ratio (downside risk)
0.87
Treynor ratio (systematic risk)
7.50%
Excess return over risk-free rate
8.25%
The Sharpe ratio penalizes all volatility, while the Sortino ratio focuses exclusively on harmful downside deviations. The Treynor ratio measures excess return per unit of undiversifiable systematic market risk.
Visual Analytics & Breakdown
Financial Distribution Diagram
Interactive circular proportion of financial allocation
What this risk-adjusted return comparison calculator is showing you
Earning high returns is easy if you take catastrophic risks. Risk-adjusted return metrics quantify how much excess return an investment generated for each unit of volatility or downside risk endured. Purpose-built for practical decision-making, the Risk-Adjusted Return Comparison Calculator provides quantitative clarity on this financial problem by transforming raw input assumptions into structured, actionable projections. Calculations reflect Australian Taxation Office (ATO) Stage 3 personal tax brackets, the 2.0% Medicare Levy, and statutory Superannuation Guarantee rates.
Calculations are performed using the mathematical model Sharpe = (Rp - Rf) / Volatility. Sortino = (Rp - Rf) / Downside Deviation. Treynor = (Rp - Rf) / Beta.. In this computation, Portfolio A annual return (%) establishes the baseline scale, while parameters such as Portfolio A annualized volatility / std dev (%) determine the progression over time. Adjusting these values allows you to observe how incremental changes directly influence your final outcome.
Mathematical Model
Sharpe = (Rp - Rf) / Volatility. Sortino = (Rp - Rf) / Downside Deviation. Treynor = (Rp - Rf) / Beta.
Inputs that matter most
Understanding how each variable impacts the final calculation
Portfolio A annual return (%)
Annualized return of Strategy A.
Portfolio A annualized volatility / std dev (%)
Annualized standard deviation of Strategy A.
Portfolio A downside deviation (%)
Volatility of negative returns only (used for Sortino).
Portfolio A market Beta
Sensitivity relative to market benchmark (Beta of 1.0).
Risk-free benchmark rate (3-month T-Bill) (%)
Yield on short-term risk-free government securities.
How to interpret your results
Distinguish between your marginal tax bracket and your effective overall tax rate. The effective rate represents the actual percentage of gross income owed in taxes.
Identify pre-tax deductions, allowable retirement contributions, and eligible tax credits that can legally reduce taxable base income before formal filing.
- ✓ Review standard deduction versus itemized deduction thresholds to ensure you claim the optimal filing status.
- ✓ Utilize tax-advantaged accounts (such as 401(k), IRA, or HSA) to legally reduce taxable gross income where eligible.
- ✓ Consult official tax authority documentation or a qualified CPA for complex multi-jurisdiction or business tax scenarios.
Worked Example Scenario
The snapshot below illustrates a representative calculation using the standard initial parameters:
Sharpe ratio (total risk)
0.55
Sortino ratio (downside risk)
0.87
Treynor ratio (systematic risk)
7.50%
Excess return over risk-free rate
8.25%
The Sharpe ratio penalizes all volatility, while the Sortino ratio focuses exclusively on harmful downside deviations. The Treynor ratio measures excess return per unit of undiversifiable systematic market risk.
Risk-Adjusted Return Comparison Calculator Assumptions & Planning Boundaries
This calculator executes deterministic mathematical models based on Sharpe = (Rp - Rf) / Volatility. Sortino = (Rp - Rf) / Downside Deviation. Treynor = (Rp - Rf) / Beta.. It assumes that entered parameters—such as Portfolio A annual return (%) and associated rates—remain constant throughout the evaluated period without unmodeled mid-cycle adjustments.
In real-world financial environments, factors including macroeconomic interest rate shifts, localized tax regulations, loan origination fees, closing costs, and inflation variability may cause actual outcomes to differ from theoretical calculations. These figures should be utilized as an analytical planning baseline rather than a legally binding quotation.
Key Factors to Review:
- • Statutory bracket baseline: Estimates use current statutory brackets and standard deductions without personalized tax adjustments.
- • Jurisdictional variance: State, provincial, local, or municipal taxes may alter total tax liability compared to federal baselines.
- • Deduction eligibility: Individual tax positions depend on verified receipts, exemptions, and formal tax authority guidelines.
Frequently Asked Questions
Why is Sortino Ratio often preferred over Sharpe Ratio? ▼
The Sharpe Ratio treats all volatility equally, penalizing a portfolio for sudden massive upside gains just as harshly as sudden crashes. The Sortino Ratio looks exclusively at downside volatility below your target return, providing a fairer view of harmful market risk.
What is considered a good Sharpe Ratio? ▼
A Sharpe Ratio below 1.0 is sub-optimal. Ratios between 1.0 and 1.99 are considered good, 2.0 to 2.99 very good, and 3.0+ exceptional, meaning the investment produces substantial excess returns with modest volatility.