Compare how different investments balance return against risk. Enter returns and volatility to see Sharpe ratios, risk-adjusted comparisons and what additional return justifies taking on more risk.
Enter up to 4 investments with their expected annual return and annual volatility (standard deviation):
Longer bar = higher Sharpe ratio (better risk-adjusted return). A Sharpe ratio above 1.0 is generally considered good.
| Investment | Return | Volatility | Sharpe Ratio | Verdict |
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Return alone does not tell you whether an investment is performing well — you need to know the return relative to the risk taken. A 12% return with 25% annual volatility is less impressive than a 9% return with 8% volatility. The Sharpe ratio quantifies this by measuring excess return (above the risk-free rate) per unit of volatility. Understanding it helps you compare investments of fundamentally different risk profiles.
Sharpe Ratio = (Investment Return − Risk-Free Rate) ÷ Standard Deviation. A ratio of 1.0 means you are earning 1% excess return for every 1% of volatility. Below 0.5 is generally poor. Above 1.0 is good. Above 2.0 is excellent (and should be investigated for whether it is sustainable). The risk-free rate is typically the return on cash or government bonds — in 2026 approximately 4.5% AER.
Maximum drawdown is the largest peak-to-trough decline in portfolio value over a given period. The FTSE 100 fell approximately 45% from peak to trough in 2008/09. A 50% drawdown requires a 100% gain just to recover. High-return investments with large maximum drawdowns are only suitable for investors who can hold through them without selling.
Missing the 10 best days of FTSE 100 performance over 20 years (while invested the rest of the time) reduces total return by approximately 50%. This is why attempting to time market exits reduces returns for most investors — the best days often immediately follow the worst days. Staying invested through volatility is statistically superior to most timing strategies.
The Sharpe ratio measures return per unit of risk. Sharpe = (Return - Risk-Free Rate) / Volatility. A ratio of 1.0 means you earn 1% of excess return for each 1% of annual volatility you accept. It enables fair comparison between a low-return, low-risk bond and a high-return, high-risk equity fund. Sharpe above 1.0 is generally considered good; below 0 means the investment underperforms even risk-free cash on a risk-adjusted basis.
UK equity portfolios typically exhibit 14-20% annual volatility (standard deviation). In poor years, a 20% volatility portfolio could fall 20-40%. Global equity indices: 15-18% typical volatility. Individual stocks can have 30-60% volatility. A 60/40 portfolio typically has 8-12% volatility. Bonds: 7-10%. Cash: near zero. Higher returns historically require accepting higher volatility.
Yes — when assets are not perfectly correlated. Combining UK equities (high return, high vol) with bonds (lower return, lower vol) in a 60/40 split historically achieved about 85% of equity return with 60% of volatility. International diversification adds further protection — different economies do not move in lockstep. True diversification means owning assets that fall at different times, not just different names in the same sector.