# Questions tagged [performance-evaluation]

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109 views

### Interpretation of significant positive Alpha and negative Momentum

I have observed that my portfolios constructed according to positive ESG criteria consistently show negative alphas and positive momentum, while the portfolios with negative ESG criteria show positive ...
190 views

### How to interpret the turnover formula?

How would one interpret the below turnover formula ignoring the average from each time period i.e., what is the meaning of the term inside the brackets? Reference: Empirical Asset Pricing via Machine ...
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### PRIIPs Category 3 - MRM and Performance scenarios

I almost worked my way through the CONSOB's PRIIPS workshop workshop and EMSA's PRIIPS flow diagram. Almost. The final missing part for me is the calculation of the standard performance scenarios for ...
179 views

### Is there an encyclopedia of peformance/risk measures for backtests of strategies?

Analysing a backtest of a strategy i.e., a series of returns of a defined period we can consider various metrics such as the Sharpe-ratio or more exotic ones like the Omega-ratio. What I was wondering:...
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### Brinson Attribution - Overweight Underweight

I am looking to perform a geometric Brinson type attribution that is able to separate out the effects of underweights and overweight's of individual securities and groups individually. From an ...
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### Supervised metric including beta?

I am working in a supervised ML framework. I'd like to define one metric to evaluate a strategy. Naturally I was initially enclined towards overall returns or sharpe ratio. I'd like to implement a ...
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### compounding component contributions

Say I have a portfolio which contains two components, A & B. Below are the daily contributions to performance (0.02 equals 2%), where the overall portfolio return is equal to the sum of component ...
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### Performance Attribution and FX positions

I'm currently reading the book "Mastering Attribution" from Andrew Colin. He first explains that you can separate the FX returns from the security return if the returns are continous ...
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1 vote
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### Confidence in Sharpe ratio given performance

Suppose I have a strategy that I believe has a Sharpe ratio of X - not the Sharpe ratio of the backtest (this can be absolutely determined), but the ratio I expect it will actually take on over the ...
127 views

### Out of Sample Results Decay Rapidly With Prediction Window or Embargo

So I am beginning to dabble my toe into quantitative finance and am trying to validate some model results and am having difficulty thinking about what they tell me. Here's my situation: I'm trying to ...
1 vote
551 views

### Understanding out-of-sample performance metrics for Realized Volatility

I fitted several models on a realized volatility process and then proceeded to obtain out-of-sample results. I'm struggling to interpret these results apart from to tell model A seems better than ...
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### Information Coefficient (IC) Formulae Differences

I am learning about Fundamental Law of Active Management, and there seems to be two different Information Coefficient (IC) formulae presented. Though I myself am not a CFA candidate, these appear to ...
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### What's the best proxy for a stock contribution to the portfolio returns?

I have a table of the weights of stocks in my portfolio for various periods and another with the returns that those stocks had for the same periods. If I sum the product between the weights and the ...
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### What is a cumulative return series?

I guess this is pretty easy but I cannot find a definition anywhere. I am trying to reproduce a paper and they say they use a cumulative return series at some point. Does anyone know exactly what this ...
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1 vote
2k views

### Multi-Period Contribution

I've read multiple research papers but can't find a good answer as to why multi-period contributions don't add up to the returns of a portfolio. I understand that arithmetic sums miss the compounding ...
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### Assess forecasting performance of model in presence of bid-ask bounce

I have a forecasting model for 1-minute asset returns $y_t$ derived from trade data. (The assets are not very liquid.) The predictors of the model include the lagged target variable $y_{t-1}$, which ...
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DGTW refers to the 1997 Daniel, Grinblatt, Titman, and Wermers paper available on Wermers' personal website. The general idea from what I have understood (please correct me if you think I'm wrong!) is ...
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### Proper way to measure portfolio returns

I have a peculiar trading strategy and I can't seem to be able to find a proper way to measure its performance. Background: The strategy consists of buying certain stocks and then selling them in ...
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### Funds Performance - Size Weighted (Negative Numbers)

I need to calculate the weighted median, average, sd of PE funds' returns. I weighted the sample according to the amount of committed capital of a fund, but I should consider negative products to ...
1 vote
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### Statistical testing of out-of-time portfolio performance (measured via a custom metric)

I'm testing (out-of-time) my machine learning (ML) based strategy against a strong benchmark. As a performance metric, I'm using a custom rolling metric $M(t)$ which takes into account the portfolio ...
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### What are the eurozone bond indices? And where can I find them?

I am trying to calculate the performance of a portfolio of fixed-income funds domiciled and operating exclusively in Europe through a multi-factor model. To do this I need historical data of several ...
321 views

### Are there better performance measures for mean-reverting vs trend-following trading strategies?

The Sharpe ratio is often used as measure to assess risk-adjusted returns of trading strategies. However, there are also other measures that can be used to assess risk-adjusted returns like the ...
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### What is a proper way to evaluate a backtested strategy if its trading asset has a strong trend?

I backtested a strategy that trades bitcoin, but I'm not sure if it's worth doing it because of the recent strong trend of bitcoin. The buy-and-hold has a better return, Sharpe ratio of the strategy ...
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### Possible survivorship bias

I am quite new to studying finance so apologies if this turns out to be a trivial question. I am writing my first essay where I want to test a value strategy from 2009-2019 by yearly ranking of the ...
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560 views

### Is "Information Coefficient" correlation or rank correlation?

From the textbook, information coefficient (IC) is a measure of the depth of an active manager’s skill. On a more formal basis, IC measures the “correlation” between actual returns and those predicted ...
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### How is the total return of an alpha strategy being calculated during backtesting?

I am using a quant simulation platform and I have chosen a formulaic alpha to be used. Now the platform is backtesting and displaying the total return of the alpha strategy over 12 years. The trading ...
1 vote
112 views

### Mathematical proof of out-of-sample disappointment in portfolio performance being a function of a portfolio's variance

The minimum-variance portfolio is considered more optimal than the maximum Sharpe ratio (tangency) portfolio on the grounds that its in-sample performance is less likely to disappoint out-of-sample. ...
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### internal rate of return ((M/X)IRR ?) of a fund

I have the following data for a fund. The contributions come from the LPs (i.e., the investors invest more in the fund, or withdraw money from the fund), MV stands for market value. The timing is not ...
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### Modigliani Squared (M2) and negative fund returns

I often see it quoted that the M2 measure offers an advantage over the sharpe, as sharpe is 'difficult to interpret' for negative returns. eg: https://en.wikipedia.org/wiki/Modigliani_risk-...
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### Reliable metric to predict out of sample performance of trading strategy

How can one estimate the performance of a trading strategy on out of sample dataset? Yes, the good old model selection problem. Everyone knows sharpe ratio of your in-sample dataset by itself is a ...
1 vote
82 views

### Performance measurement

When I regress the excess performance of a portfolio on the MKT Factor using daily data. I get a Beta of 0.95 and an alpha of 0.00011 that I annualize *252 = 2.77% I know that the annualized return of ...
153 views

### Is there a performance measure for the entire efficient frontier?

The Sharpe ratio is an example of a performance measure for individual mean-variance efficient portfolios, regardless if they maximize the Sharpe ratio or not. The efficient frontier, however, ...
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### Definition of drawdown

Say I am considering the entire time horizon, is max drawdown what I've drawn in blue, or what's in purple? Likewise, how about the current drawdown for the period in black (in practice, I am asked ...
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1 vote
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### How do Hedge Funds account for returns from short selling?

I was going over my notes from an Asset Pricing module yesterday and came across something interesting I hadn't thought about in a while. It was how Hedge Funds can over inflate their performance by ...
1 vote
1k views

### CAPM and Beta: problem with regression (Beta is too low yet statistically significant?)

I have two time series of daily return calculated as $\frac{Price_{t}}{Price_{t-1}} -1$. One is the daily returns of a portfolio, the other the daily returns of the index (MSCI World). Period is 2020 ...
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### Daily to Monthly Performance Attribution - Getting Effects to equal the Excess Return

I am building a performance attribution tool on Python to help us understand the asset allocation, stock selection effects of our fund. We are using daily price data for each component within the ...
1k views

### Why use square root of companies market cap in the WLS matrix

When doing a regression based performance attribution I see that people normally use WLS. So that both our independent and dependent variables are multiplied by our WLS matrix, which is a diagonal ...
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### What are the best metrics to evaluate an ML algo backtest, other than the nominal returns?

I have designed an algorithm that uses Support Vector Machines to classify the next day's price movement for several prominent cryptocurrencies on a ...
247 views

### Performance attribution and monthly rebalance: Is a month enough data to calculate Beta and Alpha?

A portfolio is built systematically by calculating scores and rebalanced each month to invest only in the 80 best scores. Scores change frequently and therefore the portfolio changes each month, ...
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