# How to measure the Sharpe Ratio of a high frequency trading strategy?

The Sharpe Ratio is defined as Sharpe ratio = (Mean portfolio return − Risk-free rate)/Standard deviation of portfolio return.

Unfortunately, this does not make sense in the context of an HFT strategy. In order to calculate the return of a portfolio, you need to know the amount of capital deployed in an HFT strategy, which is not as straightforward as a portfolio of long/short stocks.

Should you calculate your return for an HFT strategy based on the margin posted for a specific strategy? Or is the inverse of the coefficient of variation (AvgPnL / StdDev) the best we can hope for?

• I'd say avgPnL/stdPnL is fine Aug 8 '18 at 14:07
• Thanks @LazyCat. Would you say targeting similar values in the Investopedia article makes sense? I.e., 1=ok, 2=good, 3+=excellent? Aug 8 '18 at 14:10
• I'd say the values should be higher, e.g. 3-4 is good, but not excellent, but it depends on a strategy and what exactly you call HFT.. Aug 8 '18 at 14:38
• Agreed. Just double checking. Aug 8 '18 at 15:04

$$Sharpe = \frac{\mu}{\sigma}$$
$$Annualized\ Sharpe = \frac{\mu}{\sigma} \times \sqrt{252}$$