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Visualizing Stock Price Movement With Different Returns Per Unit of Risk (Sharpe Ratio)

A stock or a investment portfolio can not be judged by just its past returns. It has to be rated with how risky it is in order to see if it's worth investing.

The return per unit of risk means, how much return do I get as per how much risk I take.

Also, we want to measure the return less of risk free rate, because if a risky can not generate return a return better than the risk free rate, why would I invest in it?

What I am talking about is actually a famous investment term, the "Sharpe ratio", which has a formula of this:

(Return - Risk Free Rate) / Portfolio Standard Deviation

Sharpe Ratio Calculator By Mean and Standard deviation

Risk Free Rate: %
Mean Return: %
Return Standard Deviation: %

The Sharpe Ratio is

Sharpe Ratio Calculator By Entering A Series of Stock Prices, Seperated by Commas

Risk Free Rate: %
  • Returns:
  • Mean Return: %
  • Return Standard Deviation: %
  • Sharpe Ratio:

Visualizing the Result of different Shape ratio

This tool helps us see stock or investment portfolio value movement based on different Sharpe ratio. Since we just want to see the comparison between two portfolios or stocks, the risk free rate is irrelavant, which affects the two portfoilos the same way and does not contribute to the price movement. Then we assume the risk free rate is 0%. Both portfolios start with a value of $100.

Portfoio 1

Mean Return: %
Return Standard deviaiton: %
Sharpe Ratio: 0.5

Portfoio 2

Mean Return: %
Return Standard deviaiton: %
Sharpe Ratio: 0.25


Key Point

After playing with this simulator for a while, I have found it's more dangerous with higher standard deviaion, which means the lower the sharpe ratio, the riskier the portfolio is.
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