The Sharpe ratio measures the return a fund earned for each unit of risk it carried. SPY (the S&P 500 exchange-traded fund, or ETF) scored 0.55 from 3 January 2006 to 26 October 2026, with dividends counted. QQQ (the Nasdaq-100 ETF) scored the highest of the five funds we tested, at 0.69.
One number cannot say whether that is good. SPY's own score ran from -0.93 in 2008 to 2.82 in 2017 across single calendar years.
What is the Sharpe ratio? The Sharpe ratio divides a fund's mean (average) return above the Treasury bill rate by its volatility. The bill rate is the return on 3-month government debt. Volatility is how widely returns swing. A higher number means more return for each unit of volatility.
Over 20.8 years five funds scored between 0.14 and 0.69. None reached 0.70.
SPY's score for a single calendar year ranged from -0.93 to 2.82. Ten of 20 years scored above 1.
The ratio treats rises and falls alike, so it does not show the biggest drop from a high. For SPY that drop was 55.2%.
What is the Sharpe ratio?
The Sharpe ratio is a fund's excess return divided by its volatility.
Excess return is the fund's return minus the risk-free rate. The mean is its average.
The risk-free rate is what an investor could earn on 3-month US Treasury bills, which are government debt that matures in three months. Volatility is the standard deviation of the fund's returns, which measures how widely they swing. Our explainers on volatility and standard deviation cover those two terms.
A score of 1 means the fund earned one percentage point of excess return a year for each percentage point of annualised volatility. Annualised means scaled to a year. We multiply the mean daily excess return by 252 trading days. We multiply the daily standard deviation by the square root of 252.
How do you calculate the Sharpe ratio?
We worked it out for SPY. The window runs from 3 January 2006 to 26 October 2026, which is 5,236 trading days over 20.8 years. We took each day's return from the dividend-adjusted closing price.
For the risk-free rate, we used the 3-month Treasury bill rate published by the Federal Reserve Board, taking the previous day's rate for each day. It averaged 1.72% across the window and stood at 4.05% on 26 October 2026.
SPY's mean excess return was 10.61% a year, while its annualised volatility was 19.17%. Dividing 10.61 by 19.17 gives 0.55.
How do five funds compare on the Sharpe ratio?
Chart 1 shows the five funds. QQQ scored 0.69 and SPY 0.55. GLD (the gold ETF) scored 0.50, IEF (the 7-to-10-year US Treasury ETF) 0.23 and TLT (the 20-plus-year US Treasury ETF) 0.14.
Source: YX Insights price data
QQQ's volatility of 21.92% was the highest of the five, but its mean excess return of 15.16% a year outweighed that. TLT's mean excess return of 2.02% a year came with 14.73% volatility.
The same division works for each fund. For QQQ, 15.16 divided by 21.92 gives 0.69. For TLT, 2.02 divided by 14.73 gives 0.14. TLT carried about two thirds of QQQ's volatility but earned 13% of its excess return.
IEF shows the other extreme. Its volatility of 6.81% was the lowest of the five. Its mean excess return of 1.56% a year was also the lowest, so its score stayed at 0.23. Low volatility does not raise the ratio unless the excess return holds up.
Fund | Mean excess return a year | Volatility | Sharpe ratio |
|---|---|---|---|
SPY | 10.61% | 19.17% | 0.55 |
QQQ | 15.16% | 21.92% | 0.69 |
GLD | 9.31% | 18.50% | 0.50 |
IEF | 1.56% | 6.81% | 0.23 |
TLT | 2.02% | 14.73% | 0.14 |
3 January 2006 to 26 October 2026, dividends counted. Excess return is over the 3-month Treasury bill rate. Source: YX Insights price data; Federal Reserve Board
The order of the five did not change under three other methods. We used monthly returns. We ignored the bill rate. We counted bill interest on every calendar day, weekends included, instead of on trading days. Monthly returns gave SPY 0.66 and QQQ 0.80, in the same order.
What is a good Sharpe ratio?
The data sets no threshold. Chart 2 gives SPY's score for each of the 20 full calendar years from 2006 to 2025. We left out 2026 because it ends in October.
Source: YX Insights price data
The median year scored 0.96. Ten of the 20 years scored above 1. Seven scored between 0 and 1, while three scored below zero: 2008, 2018 and 2022.
A score of 1 is common for a single year. SPY reached it in ten of 20 calendar years. Over 20.8 years no fund came close. The best scored 0.69, so none reached 0.70. Shorter windows spread the scores wider: SPY's single years ran from -0.93 to 2.82, while its full-window score was 0.55.
The two halves of the period show the same limit. In 2006 to 2015 the best of the five scored 0.63, which was IEF. In 2016 to 26 October 2026 the best scored 0.81, which was QQQ. Neither half reached 1 for any fund.
A score means little alone. It compares funds over one window and one risk-free rate.
What does the Sharpe ratio hide?
First, it hides the window. We split the 20.8 years at the end of 2015. Chart 3 shows the score for each fund in 2006 to 2015 and in 2016 to 26 October 2026.
Source: YX Insights price data
IEF scored 0.63 in the first window, the highest of the five. In the second it scored -0.17, the lowest. TLT went from 0.43 to -0.14. SPY rose from 0.38 to 0.74.
Second, it hides the worst fall. Volatility counts rises and falls alike, so the ratio cannot show how far a fund dropped from a high. Chart 4 gives each fund's worst fall, measured from the highest close to the lowest close after it, searched across the whole window.
Source: YX Insights price data
TLT scored 0.14 and fell 48.3% from its high. GLD scored 0.50 and fell 45.6%. SPY scored 0.55 and fell 55.2%. Similar scores came with different falls.
QQQ scored higher than SPY and also fell less, at 53.4% against 55.2%. IEF's fall was 23.9%. Our explainer on drawdowns covers the measure.
Third, it hides the choice of risk-free rate. Ignoring the bill rate lifts every score. SPY's rises from 0.55 to 0.64, while IEF's rises from 0.23 to 0.48. IEF's score changed most.
The Sharpe ratio compares funds on one window and one bill rate. SPY scored 0.55 over 20.8 years, but single years ranged from -0.93 to 2.82. The score says nothing about the worst fall.
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Common questions about the Sharpe ratio
Is a Sharpe ratio of 1 good?
A Sharpe ratio of 1 was common for a single year of SPY, but no fund reached 0.70 over 20.8 years. SPY scored 0.55 from 3 January 2006 to 26 October 2026. In single calendar years its score ranged from -0.93 to 2.82, with a median of 0.96. A score only compares funds over the same window and risk-free rate.
What is the S&P 500's Sharpe ratio?
SPY, the S&P 500 ETF, scored 0.55 from 3 January 2006 to 26 October 2026, with dividends counted. Its mean excess return over Treasury bills was 10.61% a year, while its annualised volatility was 19.17%. QQQ, the Nasdaq-100 ETF, scored 0.69 over the same window.
What is the risk-free rate in the Sharpe ratio?
The risk-free rate is the return on an investment with almost no chance of loss, such as a 3-month Treasury bill. We used the Federal Reserve Board's daily rate. It averaged 1.72% across 2006 to 2026. Our explainer on Treasury bills, notes and bonds covers them.
What is the Sharpe ratio formula?
Subtract the risk-free rate from the fund's mean return, then divide by the standard deviation of its returns. For SPY we scaled daily figures to a year: a 10.61% mean excess return divided by 19.17% volatility gives 0.55. Our explainer on volatility defines the denominator.
DISCLAIMER: This article is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
