Questions tagged [performance-evaluation]

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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 ...
PrinceZard's user avatar
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89 views

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 ...
Webko Wuite's user avatar
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2 answers
169 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:...
Richi Wa's user avatar
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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 ...
Lucas Morin's user avatar
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Difference between the two definitions of Ulcer Index

The Ulcer Index (UI) is defined as follows on page 89 of the book "Practical Portfolio Performance Measurement and Attribution, 2E" by Carl Bacon: $$ UI= \sqrt{\sum_{i=1}^{i=n} \frac{D_{i}^...
cc88's user avatar
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1 answer
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Difference between Maximum Drawdown and Largest Individual Drawdown

Bacon in Practical Portfolio Performance Measurement and Attribution distinguishes between the two, specifying that "Maximum drawdown represents the maximum loss an investor can suffer in the ...
cc88's user avatar
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1 answer
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Validation set on Walk Forward Analysis

When backtesting a trading strategy using Walk Forward Analysis/Optimization, I see people split each window into training and testing sets. Suppose you want to select the best combination of MAs for ...
Carles Ferreres Vivero's user avatar
2 votes
2 answers
357 views

Assessing the GARCH model out-of-time

I have fitted two competing GARCH models, one GARCH(1,2) model and another EGARCH(1,1,1) both with t-distributed errors, on the ...
deblue's user avatar
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0 answers
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Bootstrap Reality Check - Why does it only assess the best trading strategy?

I wonder why White's BRC only determines whether the best trading strategy is statistically profitable. What prevents us from comparing the average V of the second best strategy (i.e. square root of ...
Maxime Willemet's user avatar
1 vote
0 answers
70 views

Forward returns measurment?

Is there a common approach to measure how a forward contract is performing? Here's what I'm thinking, each day you would price your forward with the next formula. $$ F_t = S_0 e^{-r_f T}-Ke^{-r T} = (...
Aldo Shumway's user avatar
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3 answers
239 views

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 ...
mHelpMe's user avatar
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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 ...
rlartiga's user avatar
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1 answer
312 views

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 ...
Wyatt Chalifoux's user avatar
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1 answer
113 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 ...
Jonathan Bechtel's user avatar
1 vote
1 answer
481 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 ...
s5s's user avatar
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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 ...
koyamashinji's user avatar
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120 views

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 ...
pelelter's user avatar
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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 ...
GC2023's user avatar
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4 answers
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 ...
QFqs's user avatar
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3 votes
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120 views

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 ...
cryo111's user avatar
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DGTW return adjustment

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 ...
Martin's user avatar
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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 ...
David Bryant's user avatar
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0 answers
31 views

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 ...
Vik Höguel's user avatar
1 vote
0 answers
32 views

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 ...
BGa's user avatar
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2 votes
1 answer
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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 ...
Frank Platania's user avatar
0 votes
1 answer
300 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 ...
Nick's user avatar
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0 answers
183 views

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 ...
kaz's user avatar
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0 answers
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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 ...
pasz's user avatar
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1 vote
1 answer
391 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 ...
stevew's user avatar
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224 views

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 ...
user123456's user avatar
1 vote
0 answers
103 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. ...
develarist's user avatar
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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 ...
hartmut's user avatar
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0 answers
316 views

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-...
JasonB's user avatar
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0 answers
44 views

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 ...
Kok Wooi Hew's user avatar
1 vote
2 answers
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 ...
Circus_beta's user avatar
3 votes
2 answers
145 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, ...
develarist's user avatar
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1 vote
1 answer
2k views

How to calculate a position's contribution to its portfolio's tracking error?

Say we have assets X (with weight $w_a$) and Y (with weight $w_y$) in a portfolio. X and B returns are correlated: $Cov(R_x, R_y)\neq 0$. The portfolio's tracking error is: $std(R_p - R_b) = std((w_x*(...
hartmut's user avatar
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3 votes
2 answers
480 views

Can alpha be positive if cumulative returns underperform the benchmark?

According to my portfolio analysis program (pyfolio), the alpha of the following strategy is .17 (I am assuming 17%). [Based on pyfolio documentation, alpha here is the "annualized alpha".] ...
nijshar28's user avatar
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0 answers
31 views

How to Compute the Return for a Series of Investments with Payouts?

I am looking for a metric to track the performance of investments in a security over time. I know what I have in mind but I am not sure how to map it onto a known metric. I want to answer the ...
Toaster's user avatar
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2 votes
0 answers
162 views

May Calmar ratio be considered to satisfy monotonicity?

We have the following definitions $\text{Gain-loss ratio} = \frac{E[X^+]}{|E[X^-]|}=\frac{E[X^+]}{-E[X^-]}=\frac{E[X]}{-E[X^-]}+1$; where $X$ are the returns, $E[X^+]$ is the expected gain, i.e. $E[X|...
Victor's user avatar
  • 21
2 votes
2 answers
177 views

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 ...
hartmut's user avatar
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1 vote
0 answers
65 views

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 ...
Hamish Gibson's user avatar
1 vote
3 answers
920 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 ...
tweedi's user avatar
  • 527
2 votes
3 answers
2k views

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 ...
financeapprentice1's user avatar
4 votes
1 answer
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 ...
mHelpMe's user avatar
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0 answers
234 views

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 ...
Hamish Gibson's user avatar
0 votes
0 answers
224 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, ...
tweedi's user avatar
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0 votes
1 answer
89 views

Highest asset allocation contribution to the fund’s performance

I am preparing for 2020 May FRM II test and will appreciate any explanation for this question: In terms of asset allocation contribution, why is real estate made the highest asset allocation ...
Betty's user avatar
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1 vote
2 answers
244 views

Outperform the market with a Beta lower than 1, is it possible? [closed]

I have a portfolio which seems to have outperformed the benchmark for the past 2 years however the risk system I use advises that using recent past data (lookback period of 2 years) the Beta to this ...
tweedi's user avatar
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