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Questions tagged [performance-evaluation]

The tag has no usage guidance.

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4answers
83 views

How likely it is that a strategy profits are explained by luck?

I want to evaluate a trading strategy. My goal is not to compare it with other strategies, but rather to determine how likely it is that the profits are generated from the strategy itself rather than ...
0
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2answers
86 views

P&L Calculation of Option Strategy

I have designed a call writing option strategy, where I am rolling the options upon expiry, i.e., my portfolio consists of one short call position at any given time. I have a time series of the value ...
1
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3answers
172 views

Is there a python library to generate performance metrics from returns of the strategy?

I am backtesting a strategy and have data generated from the returns of the strategy. Now I need performance metrics like maximum drawdown, Sharpe ratio, Treynor measure etc., I am writing functions ...
1
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1answer
58 views

Annualising Data

I have a 3 year performance track record of monthly returns. I am trying to calculate the Sortino Ratio, Information Ratio, Treynor index etc. In calculating the Sharpe Ratio I have multiplied the ...
2
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2answers
69 views

performance measure using pnl series

I have a time series of \$pnl of a strategy and nothing else. Can i use it to come up with some sort of a performance measure adjusted for risk? Is $$ \frac{average(\$pnl)} {sigma(\$pnl)}$$ ok to use ...
5
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3answers
108 views

Measuring alpha (Academia vs the Industry)

During academia, I learned to evaluate the performance of a portfolio by calculating alpha as the following: $\alpha_{i} = (R_{it}-R_{ft})-[\beta_i(R_{BMK_t}-R_{ft})]$ where $\alpha_i$ and $\beta_i$ ...
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0answers
67 views

Sharpe Ratio Calculation Best Practice

For Sharpe ratio formula : $SR(s) = \frac{(x_s - r)}{\sigma_s}$ where for the time period under evaluation : $x_s$ represents the average return of the portfolio $r$ represents average return of ...
0
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1answer
48 views

How to compute estimate performance with variable returns and days held

I have a trading strategy that results in a number of holdings, each of which has a variable number of days held, and obviously, return. So, for example, suppose I run a Monte Carlo simulation, and ...
1
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1answer
49 views

Testing the accuracy of a created Index

So long story short, I created a Oil/Energy Index from a basket of 5 stocks in the asset class. I am looking to use mean-reversion, in order to help rebalance the allocation of funds between ...
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2answers
86 views

What returns to use?

I have monthly returns of my portfolio... I would like to summarize the performance over a longer period in one overall figure. Should I use log returns per month then use geometric mean on the log ...
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1answer
123 views

Accuracy for GARCH models

How does one calculate the accuracy of forecasts given by GARCH models considering GARCH is run on returns. Assuming GARCH is a derivative of a regression based prediction model, would regular ...
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0answers
28 views

Measure of stock price predictor's performance?

Just started on my thesis based in using machine learning in the area of price prediction. I'm wondering what would be considered 'good' measures of predictive performance? Some papers use RMSE, but ...
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2answers
303 views

Calculating 10-year Sharpe ratio for a mutual fund in excel?

Probably a very simple question but here goes. I am looking to calculate the Sharpe ratio for some funds in excel (173 funds to be exact). The monthly returns I have are from January 2006 to December ...
2
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1answer
145 views

Log returns: volatility, outperformance, Sharpe/information ratios

I have developed the habit of simply stating that a 21% return compared to a 10% benchmark return means that the outperformance was 10% (not 11%). So, treating the whole thing in a multiplicative way, ...
1
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0answers
106 views

Portfolio risk decomposition using historical data: which weights to use for assets?

I am trying to decompose portfolio risk given historical returns of each asset in the portfolio. For a basic 2 asset portfolio, the portfolio risk is given as $$σ_p^2 = w_x^2 \cdot σ_x^2+ w_y^2 \...
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0answers
44 views

Tradeoff between Omega ratio and annual return

I was optimizing weights of constituents in a portfolio with regards to Omega ratio. The optimal portfolio had 8015% annual return with Omega ratio of 2.10. Then I constructed another optimal ...
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0answers
21 views

Reference Request: Quantitative measures of the effect of implementing ESG policies

Many investors have started implementing ESG policies in recent years. These investors or their stakeholders feel it's the right thing to do despite the fact that there might be a lower return ...
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0answers
31 views

Relative returns - annualize before or after?

Let's say I hold a stock for 30 days, with total return over the 30 days of S%. The total returns on the benchmark over the 30 days were B%. I want to compare the relative returns of that stock over ...
0
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1answer
141 views

Calculate Annualized Return / Annualized Sharpe From Portfolio

If I have a portfolio of stocks that I invest in and out of at different holding periods and different times of the year. How would one calculate the annualized returns and annualized sharpe ratio of ...
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0answers
28 views

Profit per Volume traded?

Is there a metric such as profit per traded volume (before costs)? Does it have a name? I tend to think about a profit measured in basis points relative to the total cash value moved. I find it ...
0
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1answer
337 views

average return Vs cumulative return interpretation

I am looking for the interpretation which distinguishes between average return and cumulative return. I have two portfolios : the average return of portfolio 2 = 3 10E-4 per day while the average ...
2
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0answers
228 views

kalman filter for a multifactor model in R

I am trying to set up a time varying factor model for the purpose of return decomposition via kalman filter. Following this example and slightly modifying it so as to accommodate for more than one ...
1
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1answer
268 views

What is an accepted method to calculate percent PnL from a short position?

Calculating the normalized (e.g., percent or logarithmic) return on investment on a long (equity, call option, etc...) position is fairly simple. The percent return on investment for any position ...
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2answers
494 views

Sharpe Ratio, risk free rate [closed]

when comparing the Sharpe Ratio (SR) of two different funds, does it make a difference, whether I use excess returs (returns - risk free rate) or returns (without dedcuting the risk free rate, ...
3
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1answer
162 views

Calculate Sharpe ratio for only one return [closed]

I have only one return for calculating sharp ratio. As you know, we should calculate standard deviation of returns and standard deviation of one item is 0. Suppose that the single return is 0.1 and ...
3
votes
2answers
332 views

What's the exact definition of alpha?

I am quite new to finance and I often hear people say 'I have 2 bps of alpha' or 'I have an alpha of two bps' I don't quite understand what does this mean For me alpha is about predicting power. At ...
4
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3answers
399 views

Risk-adjusted returns ratio that does not reward high risk for negative returns

Think of Sharpe ratio, Treynor ratio, or anything where (excess) returns $r$ are divided by something that represents risk, $\sigma$: $$\mathrm{performance} = \frac{r}{\sigma}$$ If the returns are ...
2
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2answers
210 views

Diversification investment metric for a FI portfolio

What is a good investment metric to reward diversification within a portfolio. Suppose we have a fixed income universe and prefer stable currency, mid yield and mid tenors. Our stressed spread var ...
1
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2answers
269 views

Sharpe ratio: discrete or continuous returns?

The Sharpe ratio is known as $$SR=\frac{\mu-r_f}{\sigma}$$ Are these values calculated from discrete or continuously compounded returns?
1
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0answers
52 views

Comparing two portfolio construction strategies

Suppose that I have two long-only portfolio construction strategies and that I backtest both of them on the same data. If I wanted to find out whether one of these methods would have outperformed the ...
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0answers
40 views

Fund Separation Theorem for Performance Seeking Portfolio

Can someone explain this statement? "The beauty of the fund separation theorem is that the performance seeking portfolio mandate is the same for all investors"
2
votes
2answers
264 views

ES not elicitable

Expected Shortfall is not elicitable as some papers have pointed out. That simply means that there is no scoring function that elicits ES. My question is, does this imply that Expected Shortfall ...
0
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1answer
220 views

Performance attribution for personal portfolio - weight attribution

i am building a platform for portfolio analytics, part of which is a performance attribution module. Given that most individual portfolio's can never have the same number of stocks as say, a mutual ...
0
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1answer
65 views

Volatility of monthly performances, where the last month is short

I'd like to calculate the vol of a return series of, say, 25 months. However, the last of those months is not completed yet. The last data point only refers to the first 21 days of the month (say, ...
2
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1answer
184 views

Weights in Portfolio Attribution when considering Currency

I'm performing a simple Portfolio attribution with the Brinson 1985 model where returns are decomposed into both an allocation component and a selection. Using the formula, I first did the ...
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2answers
232 views

Which one is best Performance evaluation measures?

I want to compare the performance of various volatility models like GARCH, eGARCH, and gjrGARCH from actual volatility(computed using high frequency data). I found 3 common performance evaluation ...
4
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2answers
1k views

Risk-adjusted performance measurement: Log returns vs. simple returns and geometric vs. arithmetic mean return

I have just simulated 49 weeks of correlated returns on 5 different stocks, assuming returns being lognormally distributed. Next, I am supposed to assume that the simulated 49 weeks of returns ...
1
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1answer
113 views

Calculating unweighted performance of stocks within a period

The well known calculation of unweighted index of stocks is just calculating an arithmetic average. And then, to calculate the performance of the index, I calculate the %change of the unweighted ...
1
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1answer
86 views

How can I compare two mutual funds' performance with a sparse set of data?

I want to compare the performance of two mutual funds. The only data I have is annual returns for the past 7 years. So I have 7 observations for Fund 1 and 7 observations for Fund 2. In addition, I ...
9
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2answers
367 views

How to evaluate minimum-variance strategies against perfect information mvp

The minimum variance portfolio should minimize the standard deviation (variance) of the portfolio at time $t+1$. The covariance matrix $\Sigma_{t+1}$ needs to be estimated in order to form the mvp. ...
3
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0answers
112 views

How does one simulate intraday strategies which don't end up flat at the close?

I ran into this trying to simulate trading interlisted names between the NYSE and the TSX. Depending on my strategy parametrization it would sometimes end up with a significant short or long dollar ...
2
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1answer
138 views

How to measure the performance of an systematic option strategy

I have a strategy based only on option instruments and I am trying to measure its performance to optimize some parameters. But how does one measure the performance of such strategies? For Sharpe ...
4
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1answer
1k views

Sortino Ratio calculation

I've been using an Excel template to calculate the Sortino ratio for my automated trading strategies. http://investexcel.net/calculate-the-sortino-ratio-with-excel Basically I input my monthly ...
2
votes
1answer
891 views

How to evaluate a success rate of a trading strategy

In order to compare various trading strategies, I am trying to calculate the success rate (the ratio of winning and losing trades). While it is clear to me that this indicator is far from being an ...
1
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0answers
93 views

Jensen's alpha with timing activities

Why is Jensen’s Alpha not an appropriate measure of performance anymore, if the fund manager is a perfect market timer as stated for example in the Treynor-Mazuy-model or the Henriksson-Merton-model?
1
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2answers
977 views

Forex P&l Attribution on Physical Forward position

Please validate my unrealized Fx P&L calculation on the commodity forward contract e.g. consider i have bought 1 MT of wheat at 300 EURO my financial currency for company is USD. I am using below ...
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2answers
830 views

Long/Short Backtesting Set up

I am going to be backtesting a Long/Short equity strategy and need some guidance on how best to deal with the short book. I was thinking that for each portfolio I would go long 50 equities and go ...
2
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1answer
105 views

Market Timing Performance for a single stock

It seems there are models that study the market timing ability of funds. Models such as the Treynor-Mazuy and Merton-Henriksson. One can also study the bull beta and compare it to a bear beta. My ...
4
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1answer
1k views

How to calculate the Sharpe ratio for market neutral strategies?

Suppose I am long one stock and short an index in a ratio effectively making market beta as zero and I close the position with some positive P&L. How should I calculate the return for the ...
3
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1answer
355 views

Create optimal portfolio by Treynor and Jensens Alpha

I would like to know which formula to use in order to optimize a portfolio based on highest Treynor and Jensens Alpha. I am aware that usually one optimize a portfolio by highest Sharpe ratio (the ...