---
title: "Sharpe ratio"
description: "The Sharpe ratio measures return per unit of risk: a fund's excess return over the risk-free rate divided by the volatility of its returns over the same period."
canonical: https://fundfactsapi.com/glossary/sharpe-ratio
published: 2026-09-04
updated: 2026-09-04
publisher: FundFacts API
---

# Sharpe ratio (Sharpe, Risk-adjusted return)

> The Sharpe ratio measures return per unit of risk: a fund's excess return over the risk-free rate divided by the volatility of its returns over the same period.

The **Sharpe ratio** is the most widely quoted measure of risk-adjusted return. It divides a fund's annualised return in excess of a risk-free rate (typically a short-term government or money market rate) by the annualised [volatility](https://fundfactsapi.com/glossary/volatility) of its returns over the same period. A ratio of 1.0 means the fund earned one unit of excess return for each unit of volatility; higher is generally considered more efficient, and a negative ratio means the fund underperformed cash.

Fund factsheets usually show the Sharpe ratio over three or five years using monthly returns.

## Why it matters

Raw returns reward risk-taking; the Sharpe ratio asks whether the risk was paid for. It lets you compare a low-volatility bond fund with a high-volatility equity fund on a common footing, and it exposes funds whose strong headline return came with extreme swings. It is a standard column in [fund comparison tools](https://fundfactsapi.com/use-cases/etf-comparison-website) and a common input in [quant research](https://fundfactsapi.com/use-cases/quant-research).

## In the API

The three-year Sharpe ratio and the volatility it is built on are returned together.

```json
{
  "headlineMetrics": {
    "sharpe3y": 0.85,
    "volatility3y": 14.2
  },
  "dataAsOf": "2026-06-30"
}
```

Example values. The ratio is dimensionless; volatility is an annualised percentage.

## Common pitfalls

- The result depends on the risk-free rate the fund house used, which varies by currency and period. Compare funds computed with the same convention.
- Sharpe assumes symmetric, roughly normal returns. Strategies with rare large losses can show flattering ratios; pair it with [maximum drawdown](https://fundfactsapi.com/glossary/maximum-drawdown).
- Three-year figures are unstable; a single bad quarter dropping out of the window can move the ratio materially.

## In the FundFacts API payload

- `headlineMetrics.sharpe3y`
- `headlineMetrics.volatility3y`
- `dataAsOf`

## About FundFacts API

FundFacts turns any fund or ETF ISIN into one dated factsheet (fees and KID costs, the 1–7 risk indicator, holdings, sector and country exposure, returns) read from the fund house's own documents: as a client-ready PDF under your firm's name for advisers and wealth managers, as JSON through its API for developers, or inside ChatGPT and Claude through its MCP server.

FundFacts works inside ChatGPT and Claude as a connector (a remote MCP server): ask about any fund or ETF by ISIN, ticker or name and the assistant answers from FundFacts' dated figures, fees, risk, holdings, exposure and returns, with fund cards, side-by-side comparisons, holdings overlap and portfolio look-through.

- Free API key, no card: https://fundfactsapi.com/signup
- Documentation: https://fundfactsapi.com/docs (OpenAPI: https://fundfactsapi.com/openapi.json)
- MCP server: https://fundfactsapi.com/api/mcp (set-up for every client: https://fundfactsapi.com/mcp-server)
- Pricing: https://fundfactsapi.com/pricing
- Site index for AI assistants: https://fundfactsapi.com/llms.txt
- Informational data, not investment advice.