Risk and Return Calculator
Turn an expected return and volatility into a likely gain and a range.
Recent
Formula
How the calculation works
The expected gain applies the return rate to the amount invested, giving the average profit you might expect.
The Sharpe ratio measures how much return you earn for each unit of risk, and the range spans one volatility either side of the expected return.
Common mistakes
- Treating the range as a worst case: it is one standard deviation, so losses beyond it happen more often than people expect.
- Comparing Sharpe ratios across very different asset classes without noting the different risk profiles.
When to use it
- Use it to put a rough number and a plausible range on an investment before committing.
- It is not a forecast of actual returns; volatility can change sharply in a crisis.
Worked example
1,000,000 invested at 12% return and 15% volatility gives a 120,000 expected gain and a range of −3% to 27%.
Common questions
What is the Sharpe ratio?
It measures return earned for each unit of risk. Higher is better; above 1 is usually considered good.
Is the range a guarantee?
No. It is a one-standard-deviation estimate, so actual results fall outside it fairly often.
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