Risk-Free Rate

The risk-free rate is the return you could earn with near-zero default risk. In practice, people use short-term U.S. Treasury yields as the proxy.

Sharpe and Sortino measure excess return: returns above the risk-free rate. That's why the risk-free rate matters.

The basic idea

Excess return per day is:

$$r_t - \frac{r_f}{N}$$

Where:

• $r_t$ is the daily return,
• $r_f$ is the annual risk-free rate,
• $N$ is the asset's calendar (365 for crypto, ~252 for trading-day assets).

What we use at Gale Finance

We use the average 3-month Treasury rate (DGS3MO) from FRED over the same window as the article. That keeps the inputs consistent across assets.

Caveats

• "Risk-free" doesn't mean zero risk. It's just the cleanest baseline.
• The choice of rate (3-month vs 1-year) can move Sharpe/Sortino a bit, especially in high-rate environments.