Questions tagged [sharpe-ratio]

Excess return per unit of deviation in return.

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54 views

Comparing Negative Sharpe Ratio

It is widely accepted that the higher the Sharpe Ratio, the better. But, how do we compare two strategy with negative Sharpe Ratio? Suppose we have two trading strategy $A$ and $B$. Consider the ...
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relation between risk averson coefficient and maximum Sharp ratio in Black-Litterman context

BL model compute the implied returns based on the reverse optimization where the objective is: $${\underbrace U_{{\rm{investor's \ risk \ utility}}} \buildrel \Delta \over = {\bf{w}}_M^T{\bf{\Pi }} - \...
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Sharpe Ratio of a Long-Short Portfolio

I have a portfolio High and Low (according to the highest profit). From this I have formed my long short portfolio and calculated my Sharpe Ratio. How to interpret this correctly? Does a positive ...
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What should be the duration over which the Sharpe Ratio, particularly for mutual funds, is calculated and why?

Usually people use daily or monthly returns in the calculation of sharpe ratio. What is the reason for this granularity? Is this granularity dependent upon the type of asset? As in, stocks are ...
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Factor Models vs. Risk-Adjusted Performance Measures

I am building a study focusing on portfolio returns relative to a number of portfolios constructed using various ESG screening techniques. My intention is to measure and compare the performance of '...
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56 views

Standardizing Sharpe Ratio or not when standardizing Features

I am currently trying to check the Feature Autocorrelation for a Trend Strategy. I am using XGBoost for that purpose. In addition I work with SHAP. In the first run I realized that without ...
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355 views

why does Cross Validation *not* solve Backtest overfitting?

In this famous paper, Bailey and De Prado discard Cross Validation as tool to check for Backtest overfitting, on the ground that it is just an holdout method: ... If we apply the holdout method ...
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Correct way of making sharpe optimized portfolio?

I have monthly returns of about 977 securities of past 10 years. If I keep the returns as it is i.e. I do not multiply by 100 and keep the returns as 0.1, 0.2 , -0.3, 1.2 then I get different results ...
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What does negative proportion mean in sharpe optimization model?

Using the last 20 days of market return and some stocks return I made sharpe optimial portfolio and following were the stock names and investment proportion to be made. ...
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Can I use Sharpe optimization model for short term portfolios?

I wanted to know if there are any mention of what is optimal lookback period i.e. how many days, weeks, months or years of return data I should consider for constructing sharpe optimal portfolio and ...
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How to test the difference between samples of sharpe ratios

I am testing the performance difference between 2 portfolio strategies. I use Monte Carlo simulation in R to generate $N$ simulations of portfolio returns for each strategy. I then compute the Sharpe ...
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89 views

Why not calculate Kelly using semivariance? As w Sortino

Kelly is calculated as mu / sigma^2. If we remove our highest performing returns from our calculations this actually increases our Kelly leverage, which does not make sense to me. A less profitable ...
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How to calculate sharpe ratio for a strategy that has a stoploss and a profit exit condition?

I am working on a pair trading strategy, which either books a profit or holds the position till it hits stop loss over multiple days. I have months where I don't hit stop loss at all and this makes ...
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Optimise the Sharpe ratio of a portfolio of uncorrelated assets

Given a portfolio of $n$ assets, mean returns vector $\mu$, covariance matrix $K$, one can calculate the portfolio weights $w^*$ that maximise the portfolio Sharpe ratio, by solving: $$w^*=\text{...
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109 views

Convex optimization of ex-ante information ratio

I am trying to optimize an ex-ante information ratio using a convex optimizer. I have started with the Sharpe ratio and have managed to reform it into a conic problem as such: https://people.stat.sc....
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Do options have diversification benefit?

Imagine the universe where we have one investable volatile asset but with an available liquid options chain for it. The question: can a portfolio consisted of this asset, and some options have any ...
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How to compute a portfolio PnL and Sharpe?

I understand this is quite the common question but I haven't been able to understand this concept through the previous posts. My situation is that each day, I'm interested in buying/selling one ...
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60 views

Sharpe ratio from second returns? HFT

I have an intraday trading strategy so I take several positions each day. I have prices for each stock, with a 10 second resolution. So the data looks like this: ...
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57 views

Optimal Portfolio Formulation

I'm currently studying Luenberg's Article "Projection Pricing" (Jrl of Optimization Theory and Applications, Vol. 109, No. 1, pp. 1–25, April 2001) and there is a claim that I can't prove. ...
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From annualized Sharpe Ratio to number of daily losses

I have seen a few statements that link a particular annualised Sharpe Ratio to the likely frequency of 'loss day' across a given period: e.g. "A annualised Sharpe Ratio of X, implies the ...
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Did annual Sharpe ratio follows T distribution?

Under some special condition, Sharpe ratio can be annualized by multiply $\sqrt{252}$, Since daily Sharpe ratio ($\frac{mean(r)}{std(r)}*\sqrt{T}$) follows student T distribution with degree of ...
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What does p-value adjustment under FWER do?

The background is I am predicting a time series with three strategies, the hypotheses is the strategies have a non-zero Sharpe ratio. I am reading Backtesting, by Campbell Harvey and Yan Liu paper in ...
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334 views

Do passive ETF fund managers care about profolio metric such sharpe ratios and sortino ratio?

Do passive ETF fund managers care about portfolio metrics such as Sharpe ratio and Sortino ratio? I understand hedge fund managers care about these risk metrics for their investors. What about the ...
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101 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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Statistical distribution of Max Drawdown

Are there any good papers/ references on the statistical distribution of Max Drawdown over a specified amount of time given a specified Sharpe? Assuming returns are iid normally distributed I’ve been ...
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Capital efficiency of event triggered strategy

Let's assume we have two long short equity strategies A, B with a Sharpe ratio of 2 each. ...
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Optimising returns weighted by Sharpe ratio in the context of Supervised Learning

In the Kaggle Jane Street market prediction competition we are put in a Supervised Learning Framework to deal with 'trade opportunities'. That is, we are given instances of previous trade ...
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Performance metric that integrates market volatility?

Is there a performance metric like Sharpe that takes into account the volatility of the current market instead of only the volatility of the fund? I believe investors may have different degrees of ...
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calculating sharpe and sortino ratio given monthly returns [closed]

suppose I have (fictitious) monthly returns: ...
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how to use SOFR as risk free rate in portfolio construction

Good afternoof to everyone. I would like to create a portfolio following a multifactorial approach (I have been writing my master's thesis). As I would like to calculate a series of ratios (e.g. ...
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116 views

Sharpe Ratio Graphed Over Time

I looked and could not find a suitable answer to my question already, so: What is the best way to calculate the Sharpe Ratio over time, given I have about a decade's worth of 1-minute candlesticks? I ...
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Should the sharpe ratio always change with number of assets?

I am trying to understand if the Sharpe ratio of a portfolio change if we increase or decrease the number of assets in the portfolio. It would be helpful if you could provide an explanation with ...
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282 views

What is stopping me from using high leverage on high Sharpe strategies?

Say the example market return is 12% for the year, I managed to develop a 3-4 Sharpe strategy that makes 6% a year. If I can borrow twice the size of my original fund at 0% interest, I can make more ...
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Measuring Information Coefficient and Sharpe Ratio

I have been looking through / using Quantopians' Alphalens library to measure/create new factors, and I had some questions in evaluating the credibility of the factor. This is what I have: I have ...
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Can I use the Sharpe Ratio as an objective function in algorithmic trading?

I’m experimenting with custom loss functions for different trading rules and have come across a few articles citing success in directly using the (negative) Sharpe Ratio as a loss function, ...
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Industry or academic standard frequency to report the return, standard deviation, and Sharpe ratio?

Everyone (funds, banks, academics, financial information sites etc.) reports the annualized return, standard deviation, and Sharpe ratio. Yet we never get to know what the basis of their computation ...
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298 views

Is scaled Sharpe ratio a t-statistic?

I was just reading Quantitative Trading: How to Build Your Own Algorithmic Trading Business and it suggests annualizing Sharpe ratio in order to compare performance of strategies: $$\text{Annualized ...
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132 views

Sortino ratio lower than sharpe ratio?

Under what circumstances is a sortino ratio lower than a sharpe ratio? What does it mean about the distribution?
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Sharpe from signal to daily return correlation

A few years back in an interview I remember being asked to derive the Sharpe ratio from the correlation between a pre-open daily signal and the open-close returns. I think you had to make some ...
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54 views

Should the strategy shut down period be considered when calculating Sharpe?

When computing the Sharpe for a strategy, should the shut down period be considered?
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question regarding sharpe ratio calculation

Hi All: I looked in the search icon for questions related to Sharpe Ratio but I couldn't find what I was looking for. My question is about how to calculate it. I will explain the scenario and then ask ...
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Computing Sharpe ratio correctly when adding more funds

I've a very basic question: Assume, as time $t_0$, I started a algorithmic trading strategy with initial capital $X_0$. My strategy on subsequent $N$ time frames generated returns $r(t_1), r(t_2),..r(...
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Approximating Sharpe and Sortino ratios from Exponential moving averages

So I've been studying the paper "Learning To Trade via Direct Reinforcement" Moody and Saffell (2001) which describes in detail how to use exponential moving estimates (EMAs) of returns at ...
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Portfolio vs individual security Sharpe and Sortino ratios

For an individual security calculating it's Sharpe and Sortino ratios is straightforward. What I'm curious about is the following: Let's say I have a portfolio of several securities, which is a ...
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Beta Adjusted Return

I'm a bit confused about the definition of the 'Beta Adjusted Return', say I have benchmark whose return is $r$ and a stock whose return is $R$, the beta adjusted return is defined as $$ ...
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Question on the details of certain parameters in Sharpe Ratio [closed]

I'm puzzled about certain parameters in calculating the annualized Sharpe Ratio using monthly return data. Average excess return: Does this mean the arithmetic average of all the monthly excess ...
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Portfolio rebalance - How many data back do I need to perform sharpe ratio optimization

if I do a periodical rebalance of my portfolio based on sharpe ratio optimization, how many historical data should I take in account for optimizing with respect to the frequency of rebalancing? For ...
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Questions about Sharpe Ratio calculation

Let's say I have daily returns. Don't they depend on the risk per trade I am using? Obviously, if I'm risking 2% of equity per trade returns will be drastically different than when I'm using 10%? So ...
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how to relate risk aversion and sharpe ratio in optimisation

I am trying to optimise the following: U(w)=w′μ−λ/2w′Σw which is the typical risk aversion problem. I would like to set lambda in order to have the max sharpe but I cannot find in literature what is ...

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