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Questions tagged [sharpe-ratio]

Excess return per unit of deviation in return.

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Can I add Sharpe Ratio with information ratio in convex way

Sharpe Ratio can be turned into a convex function. And information ratio as well. Supppose I add these ratios as follows: (SR + 3 IR ) / 2 Can this function transfer into convex? How should I do it?
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Calculating returns on sequence of trades with zero starting capital

Background I am trying to calculate the returns on a sequence of trades performed by an entity, where I do not know the starting capital. Therefore I assume a starting capital of zero. From these ...
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How to create a long-short portfolio on an academic basis

This question may have been asked before, but unfortunately the answers didn't help me very much. It's about how to create long short portfolios. In the papers you often read that they have created ...
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sharpe ratio, convert into convex function, not understand that constraint, [duplicate]

I am reading about tranforming sharpe ratio into convex problem After some following, its converted into min xTxy s.t. (u-rf e)x = 1 ...
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"Risk Matters Hypothesis" - does it really?

Risk.net has recently run a story about the "risk matters hypothesis" which refers to Sharpe’s Arithmetic and the Risk Matters Hypothesis by Haghani, Ragulin and White (2023). If I ...
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Maximze Sharpe ratio from matlab to python [closed]

I know there matlab library funtion for Optimzing Sharpe ratio estimateMaxSharpeRatio, it mentioned it use direct method How can i do the same thing in python Is there any python libraries Or need ...
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Conic form of maximizing Sharpe ratio with long-short constraints

I read the blog post of mosek software package and learn how to transform the original form of maximizing the Sharpe ratio to the conic form. We consider the following optimization problem $$ \max_{x\...
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Calculating Annualized Sharpe Ratio

I'm calculating the annualized Sharpe Ratio for a strategy with quarterly trades and would appreciate your input on my approach: Trades per year: 4 Average return per trade: 1.6% Standard deviation of ...
Galadon's user avatar
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How to annualize with different trading days in single portfolio

Nowadays, traditional stocks have 252 trading days, and cryptocurrency have 365 trading days. If I want to find the annualized Sharpe ratio, how do I do that? Each element multiplied by 252 / 365? And ...
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Question about marginal risk contribution / portfolio volatility decomposition

I am trying to understand the rule where you add a new asset to a portfolio if its Sharpe ratio is greater than the product of the portfolio sharpe ratio and the correlation between the portfolio and ...
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Sharpe ratio 1 and probability to lose money

I came across the following interview problem and I am looking for a possible solution. We have a strategy with risk free return 0 and sharpe ratio 1. What is the probability to lose money over four ...
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Formal Sharpe Ratio Calculation

Would appreciate clarity from senior quants on the correct way to calculate sharpe Back in the zero interest rates days, I saw some senior quants would calculate sharpe ratio as avg(pnl)/std(pnl) and ...
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Sharpe ratios (and other risk-adjusted metrics) on Terminal wealth (long-horizon payoffs)

I'm exploring financial simulations with bootstrapped returns (TxNBoot) to calculate long-horizon returns. Terminal wealth (e.g compounded returns at T) is a vector of payoffs (NBootx1), typically ...
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About the problem of maximizing Sharpe ratio [closed]

Regarding this problem, is this equivalent to optimize the standard mean variance portfolio and then comparing the Sharpe ratio of all the portfolio along the efficient frontier? Edit: Instead of ...
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Portfolio Optimization with ETFs and Futures

I am looking to perform portfolio optimization with a single ETF (or two) and a VIX futures (with the possibility of adding an additional hedging instrument). Here are some features of my portfolio ...
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Deriving probability of hitting stop loss given annual return and Sharpe

Suppose I have a strategy with a mean return and defined Sharpe. Given a preset stop loss, I want to calculate the probability of the stop being hit. In the example below I use the following ...
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Constraints in a Mean-Variance Optimization Case

Might be a repeat question, feel free to close if it is. I am trying to perform a mean-variance optimization (maximizing the Sharpe ratio) for lets say 5 assets. Besides the weights of the assets ...
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Adjusting the p-value of a strategy for number of parameters

Let's say I have some metric and I'm trying to evaluate whether it's predictive with respect to returns. I plan to only take trades where the value of the metric is above a certain threshold, such ...
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Calculating Ex Post Sharp Ratio's for decile portfolios

Dear Stack community, I hereby would like to ask what the correct calculation is for calculating Ex Post Sharp Ratio's. If I am correct, I already know that I am supposed to divide the average excess ...
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Determine expected geometric return from Sharpe ratio

I'm trying to calculate the expected annual geometric return, given that I'm provided with an annual Sharpe ratio (0.5), the yield on a 3-month T-Bill (5%) (using this yield as a proxy for the risk-...
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Relationship between holding time and sharpe ratio

Let's say, for simplicity, I have a long-only portfolio $P$ that consists solely of equity. The average holding period for each asset is $n$ days. Are there research papers or theorems that ...
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Question about adding new investment A to portfolio B

I've found a ton of sources that mention the classic rule of "If the Sharpe ratio of the new asset is greater than the Sharpe ratio of the existing portfolio times the correlation of the existing ...
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How does one show that the Sharpe Ratio is closely related to the t-statistic of the mean differential return?

I see it being mentioned in many places, such as here, and even here. How should I interpret it? Suppose I have an array of signals, I, and returns of those signals, R Then my regression is R = a + BI ...
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Does imbalance not impact returns-calculation weighing when calculating the Sharpe Ratio of an equity Long-Short strategy?

I'm calculating the Sharpe Ratio for a simple equity long-short strategy (short stock S and use proceeds to buy stock L). Obviously this is self-financing. In "https://quant.stackexchange.com/...
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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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107 views

Squared Sharpe Ratio - Fama and French

I am investigating various versions of nested and nonnested Fama and French factor models. Performance of the models is compared on the basis of Squared Sharpe Ratios. Bariallas et al. (2020, JFQA) ...
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Figuring out how TradingView calculates the Sharpe ratio [closed]

This is the simplest backtest I've come up with, yet I can't figure out how TradingView has calculated the Sharpe ratio to be 0.577. I've set the risk_free_rate=0. Is it possible to extract the ...
asmani's user avatar
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Mixing Max Drawdown and Sharpe Ratio in a single utility function : is there a standard approach?

We know that 2 strategies can give the same Sharpe Ratio, but with different Maximum Drawdown. I computed myself these 2 strategies having the same cumulative return and SR, but with considerably ...
Jerem Lachkar's user avatar
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1 answer
345 views

Why isn't the Sharpe Ratio computed on the cumulative return rather than return mean? [closed]

I have learnt that the Sharpe ratio is a measure of the annualized return rate mean over the annualised standard deviation of return rate distribution. I also learnt that when compounding, the mean of ...
Jerem Lachkar's user avatar
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alternatives of sharpe's ratio with respect to maximum-drawdown(mdd)

Given a window, expected return divided by standard deviation is sharpe's ratio. But I want to form another figure for mdd-adjusted return. mdd divided by expected return can be suggested but it seems ...
daydrive's user avatar
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Derivation Treynor-Black model

In the treynor-black model the assumption is that markets are not fully optimal and it is possible to achieve additional alpha on top of the market portfolio. After a mean-variance optimization ...
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How to Maximize Portfolio Sharpe Ratio using Lagrange Multipliers in a Factor Model

I've come across the notes of the 2003 lecture "Advanced Lecture on Mathematical Science and Information Science I: Optimization in Finance" by Reha H. Tutuncu. It describes on page 62 in ...
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Finding latest market price of market portfolio according to No Arbitrage

In Excel, I have the monthly stock price data for the past few years for Asset A and Asset B. I have calculated the monthly returns, mean returns, variances, and standard deviations for both stocks as ...
Red's user avatar
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4 votes
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If returns are correlated, are Sharpe ratios correlated?

Suppose we have two correlated return series: $$a \sim N(\mu_a,\sigma_a^2)$$ $$b \sim N(\mu_b,\sigma_b^2)$$ $$correl(a,b)=\rho$$ The sample Sharpe ratios of the two series, after $t$ samples for $t \...
elemolotiv's user avatar
8 votes
1 answer
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Propagation of Errors of Sharpe Ratio

Looking at Opdyke, J.D., Comparing Sharpe Ratios: So Where are the P-Values?, page 22 (Appendix A) an application is given for the Propagation of Errors formula on a ratio of two random variables: $$\...
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How to derive the sharpe ratio for an intraday strategy

I have an intraday strategy, which will place 0-5 trades for each intraday trading session. (Note that some days it will not place any trades out). The average duration of a trade is around 33 minutes....
user1769197's user avatar
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What can we say about the probability a strategy losing money in a year if it has an annualized Sharpe of say 2?

If we imposed the restriction that the strategy is not skewed, then using Chebyshev's Inequality I can show that the probability of it losing money in a year is less than 12.5%. Let $X$ be the yearly ...
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How to annualize sharpe ratio using quarterly data?

Say I have quarterly returns data for a stock. I am currently calculating rolling Sharpe ratios using an eight-quarter forward window. So for example, say I have quarterly returns data starting in ...
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Relationship between Sharpe Ratio and Investment Horizon in a theoretical IID return world

In his paper, "The Statistics of Sharpe Ratio", Andrew Lo writes "hence, the ratio will increase as the square root of q, making a longer horizon investment seem more attractive. This ...
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Difference between Treynor ratio and market premium

The definition of Treynor ratio is given by $$ T = \frac{r_i-r_f}{\beta_i}, $$ where $r_i$ is the portfolio $i$'s return, $r_f$ is the risk-free rate and $\beta_i$ is the portfolio $i$'s beta. I am ...
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I am comparing two assets Rolling 10 Year Sharpe Ratios. I want to know what percentage increase in Sharpe Ratio is meaningful?

If Asset A is having 35% higher Sharpe Ratio than Asset B is that significant? Or should I consider that only if Asset A is having 50% higher Sharpe Ratio than Asset B.
Anon9001's user avatar
2 votes
1 answer
321 views

how to calculate the Sharpe ratio based on a list of trades, with space between them?

First, there are a few things I'm not clear about, like what the 'risk free' return is.. is there even such a thing in trading? or how to handle inactive days, etc. Let's assume I have a period of 30 ...
Thomas's user avatar
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long short portfolio sharpe ratio

What is the proper way to caluclate sharpe ratio for the long short portfolio? When I calculate daily return with no cost, I use this formula: (return for long k.mean()+ (-1)*(return for short k.mean()...
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4 votes
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Why does the mean term have a higher effect than the covariance term in MV optimization? [closed]

I am trying to use the mean-variance (MV) optimization framework. When I change the mean term using future-ground-truth return (I am not supposed to do so), it has a higher effect on the MV ...
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Tangency portfolio negative maximum Sharpe ratio

Suppose I have three assets: the market, factor A and factor B. The market is in excess returns of the risk free rate. The other two factors are long-short portfolios. I have net returns for these ...
amar96's user avatar
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2 votes
1 answer
318 views

statistically compare 2 sharpe ratios

I have a problem regarding comparing sharpe ratios of portfolios. As an example: I have constructed a portfolio from monthly data over 5 years, giving me a sharpe ratio of 0.85. I have a portfolio ...
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1 answer
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Calculating Sharpe Ratio with semi-standard deviation

Would it make sense to calculate the Sharpe Ratio with the semi-standard dev. So as to standardize/compare asset returns to their downside risk?
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2 answers
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How to annualize Sharpe Ratio if monthly returns are serially correlated? Calculation of autocorrelations

I am looking at a data set of 60 monthly returns (last 5 years) and want to calculate an annualized Sharpe Ratio. The usual way of doing this is to calculate the monthly Sharpe Ratio first, and then ...
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efficient frontiers are equal

I created 3 different efficient frontiers with 3 different risk factors(sharpe ratio, ulcer performance index and serenity ratio) and I wanted to find both MSR and GMV(and their equivalent for the ...
user61255's user avatar
1 vote
1 answer
281 views

Is this quadratic form the Sharpe ratio?

I'm reading Merton's An Analytic Derivation of the Efficient Portfolio Frontier. In section IV, he derives the efficient frontier with a riskless asset. Let $\mathbf{w}$ be a vector of portfolio ...
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