Questions tagged [sharpe-ratio]
Excess return per unit of deviation in return.
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42 views
Is this OK for simplifying Sharpe Ratio?
I've tried using Average(return)/StdDev(return) and it seems to work. I just want to see a measure of equity curve smoothness. Are there any downsides to this?
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1answer
56 views
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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16 views
annualized sharpe from single day returns with varying cash outlay
Lets say I have a series of daily returns with varying cash outlay. I am trying to take these daily returns to compute the sharpe ratio for the year. my question is about treatment of the weightings.
...
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1answer
41 views
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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1answer
54 views
Calculating Sharpe Ratio on a per trade basis?
I have a strategy that I've been playing with and trying to backtest. It's of questionable practicality at the moment, but the idea is to pick one stock from the Dow 30 companies to trade right near ...
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1answer
106 views
How to test signifcance of a sharpe ratio
Let say you have measured a Sharpe Ratio of $S^*$. What is the simplest way (ie no fancy distributions) to do a hypothesis that this is different from $0$?
So $H_0: \text{ The sharpe ratio is equal ...
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1answer
82 views
Which metric is most predictive: Mean, Sharpe, Calmar, …?
Suppose you have created a new trading algorithm:
by varying the params of the algorithm, you get a large number of similar trading strategies (e.g. slightly different trigger thresholds, stop loss ...
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0answers
36 views
Annualised Sharpe Ratio of a 24/7 Round-The-Clock High Frequency Trading Strategy
Consider a high frequency trading strategy that trades Bitcoin-USD round the clock 365 days of the year at 5-minute intervals. How would one calculate the annualised Sharpe ratio of such a trading ...
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24 views
Maximum Sharpe ratio portfolio - derivation
I want mathematical derivation of how to construct maximum Sharpe ratio portfolio. Any resources with mathematical derivation (if its implemented in Python, that will be great) will be useful
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54 views
portfolio return, sharpe ratio and value at risk
Can you please help me to confirm if my calculations are correct or need improvement, or (too simplistic...) :
- portfolio return,
- portfolio standard deviation,
- portfolio sharpe ratio
- ...
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0answers
30 views
calculating sharpe-ratio and annualized returns
Im trying to get the sharpe ratio to be calculated daily but I can only calculate it annually, this is also happening for my annualized returns, can somebody help me please?
...
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1answer
73 views
Which riskfree rate to use for Maximum Sharpe Ratio Portfolio?
I am conducting out of sample backtests of the MV framework. But how exactly do I derive the Maximum Sharpe Ratio portfolio for this? The standard forumula of the Sharpe Ratio is given by:
$$\frac{(...
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48 views
Annualizing the Sharpe Ratio
I am doing some calculations and I am working currently with the weekly Sharpe Ratio. Can I annualize the Sharpe ratio by multiplying with the square root of 52?
Greetings!
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62 views
How to calculate out-of-sample and in-sample Sharpe Ratio?
I am conducting a backtest on different investment strategies and would like to calculate
(i) the out-of-sample Sharpe ratio and
(ii) the in-sample Sharpe ratio according to "Optimal Versus Naive ...
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1answer
77 views
ESG Style Analysis
Hi all and thank you in advance.
Do you think that implementing a style analysis on ESG equity portfolios is feasible?
When I mean style analysis I refer to the seminal paper of Sharpe (1992) but I ...
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81 views
Papers with Sharpe Ratio above 3 [closed]
Could you provide examples of academic papers proposing strategies with Sharpe Ratio above 3? Above 4?
Any type of strategy and any mix of asset classes would do. However, a particular interest is ...
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46 views
Sharpe ratio of annualized log returns
I have returns from the last 12 months on a portfolio, and i have risk free rate for the latest year, on daily basis.
I have annualized the risk free rate, and i am using log returns for the period.
...
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61 views
Robust Sharpe ratio
The denominator of the Sharpe ratio is sample portfolio volatility, $\sigma_p$, which is the square root of portfolio variance based on the quadratic squared loss, L2. Alternatives for the denominator ...
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1answer
330 views
Forget Kelly, forget fractional sizing. Where is the general theory?
I am struggling to find a general theory of position sizing. Help!
The literature is all about fractional position sizing, but that's just one of the innumerable strategies. What about all the other ...
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44 views
Sharpe ratio of strategy exploiting correlations that vary by time interval
The Epps effect "is the phenomenon that the empirical correlation between the returns of two different stocks decreases with the length of the interval for which the price changes are measured" (...
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2answers
164 views
Sharpe Ratio Formula
In calculating Sharpe Ratio, I have come across a variety of equations that are similar but differ in wordings. I am curious to know which one is used within best practice. Here are all the different ...
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4answers
143 views
T-bond of what maturity to use as risk-free rate when calculating excess return?
I am comparing different asset classes in order to estimate the expected return and the risk of a portfolio. I have historical data (adjusted close price) for my asset classes for the last 5 years ...
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1answer
58 views
step by step calculation of the sharpe ratio
I am trying to calculate the Sharpe ratio. Suppose I have:
$$ x_t = \alpha + \beta y_{t} + \epsilon_{t}$$
$$E[x_{t}] = \alpha + \beta E[y_{t}]$$
$$var[x_{t}] = \beta^2var[y_t] + \sigma^2$$
The ...
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1answer
60 views
Is there any way to compare portfolios created using sharpe optimization model?
I created different portfolios using sharpe portfolio optimization model and I want to know is there any way to compare those portfolios before actually investing in them?
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72 views
Annualizing Sharpe Ratio using small time frames
I have coded a strategy that works 5m time frame. I know you multiply it by 252 but i am using 5m or sometimes 1h time frame. Which number do i have to chose to multiply? There are 72576 five minutes ...
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1answer
113 views
Sharpe Ratio and Sortino Question: Standard practice
For Sharpe ratio calculation, I have seen several variations for the denominator; either the standard deviation of portfolio returns or standard deviation of excess returns. Is there an accepted ...
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0answers
36 views
Relation between Sharpe ratio and amount of capital
In the book Quantitative trading by Ernest P. Chan, in one of the example we compute the Sharpe ratio of long-short strategy and one step perplexes me:
In column L, compute the net returns for ...
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1answer
350 views
Alpha vs. Sharpe Ratio
What are the main differences between a strategy's Sharpe ratio, and its alpha based on the Fame French factors? Does it make sense to evaluate them both in a thesis?
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1answer
112 views
Alternative relative performance measure to Sharpe ratio for non-IID return
The Sharpe ratio is often used to compare the relative performance of portfolios despite its IID-assumption for the returns being violated.
I can find ample warnings about the consequences of ...
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1answer
85 views
Risk-free rate in the Sharpe ratio
Let's say I have data stemming from date $t_1$ to date $t_2$, I have the annualized return each day during those two dates. Therefore I know the expected return and the standard deviation of the ...
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0answers
58 views
Why not to maximize Sharpe Ratio directly when computing optimal allocation of an order?
I was reading the following paper of Engle about balancing transaction costs performance and risk:
https://www.nber.org/papers/w12165.pdf
He deals with finding the optimal placement of the child ...
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0answers
25 views
How to annualize sharpe with non-continuous trading days
I want to calculate annual sharpe of my tradingsignal. I assume risk free rate is zero, so my sharpe is return to risk, not excess return.
My trading signal is binary on/off for different trading ...
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56 views
Calculation of the risk free rate
For portfolio management I need the risk-free to compute the sharpe ratio.
I would like the use to rate on the 3 month treasury bill from the US.
https://fred.stlouisfed.org/series/TB3MS#0
The ...
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34 views
Given multiple strategies with their ER, volatility, how would I calculate the combined Sharpe?
Without knowing the actual daily returns, I have a table something like this:
...
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64 views
Sharpe Ratio and interest rate
The Sharpe ratio is calculated as the ratio between the return and the volatility.
Now, when I have a trading strategy that requires to be invested sometimes and to be flat other times, I assume 0% ...
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1answer
111 views
Sharpe Ratio - Linear Homogeneous
In the book "Portfolio Construction and Risk Budgeting" of Sherer, there is an excercise with the following prompt:
"Use matrix algebra to find the maximum Sharpe ratio portfolio. Show that the ...
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2answers
126 views
Geometric Sharpe ratio
I'm computing different metrics for mutual fund performance. I want to use classic Sharpe ratio, but I also got to know there is geometric Sharpe ratio. Unfortunately I didn't find enough info about ...
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0answers
115 views
Deriving Single Index Model (Market Model)
is the return of the stock of observation
is the return of the reference market
is the regression coefficient between the observed stock and the reference market
is the regression intercept between ...
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0answers
22 views
Distribution of the Information Ratio // Mean and Variance Product
We are investigating the distribtuion of the information ratio. However, instead of using the original information ratio defined as
\begin{equation}
IR=\frac{E(r_1)-E(r_2)}{\sqrt{Var(r_1-r_2)}},
\end{...
2
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0answers
72 views
sharp ratio/sortino ratio for options portfolio
I am thinking that the sharp ratio is not a valid performance metric for a long/short options book, because options are inherently nonlinear and the standard deviation simply cannot correctly capture ...
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1answer
175 views
Sharpe testing in R
My goal test: The statistical significance of the difference in Sharpe ratio between funds A and B.
My data: I have daily prices from January 23 2008 until 10th of April 2019 (n = 2818 observations). ...
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1answer
300 views
Sharpe Ratio - How do I calculate my risk free rate from daily yield data?
I am trying to compute a Sharpe ratio for a portfolio spanning over 20 years. I have daily data for the portfolio, as well as the yield of CH10Yr (10 year bond in Switzerland, downloaded from Thomson ...
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2answers
167 views
No-arbitrage and the sharpe ratio?
I'm reading a paper and it says that in a no-arbitrage market the sharpe ratio is the same for all bonds. I'm guessing that a difference in two bonds sharpe ratios would open the possibility of ...
2
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2answers
136 views
Modified Sharpe ratio
I would like to model different type of investors, hence I need to find some kind of utility functions to optimize. Apart from very abstract exponential utility function, I couldn't find any proper ...
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1answer
202 views
Calculating Ex-ante Sharpe Ratio in multi-period setting
I have built a return process $\{x_t, t = 1,\dots,T\}$ for an asset. Suppose I have generated $K$ sample paths $\{x_t^j, t=1,\dots,T\}, j=1,\dots,K$. I think of two ways to compute the Sharpe ratio.
...
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1answer
84 views
Can I calculate Sharpe ratio by running over many samples?
I have an algorithm that I am backtesting 200 times. It trades over 200 trading days per iteration.
My sharpe ratio is calculated as follows:
...
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2answers
88 views
Compare ex-post Sharpe ratio of multiple portfolios?
Say I want to compare the Sharpe ratio of two portfolios, is it necessary to look at the excess return? Or can you just compare their average return divided by their standard deviation?
So basically, ...
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0answers
37 views
Which performance evaluation measure to assess “Connectedness Matrix” based porfolios?
1. Question
Which performance evaluation measure would be best to assess the portfolios built on 'connectedness matrix'? The connectedness matrix is the concept introduced in the academic paper "...
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0answers
126 views
Alpha decay for strong vs weak signals
Assuming you are computing alpha decay similarly to shown here (e.g., exponential decay of the information ratio with lagged signals).
I'm wondering whether it is preferable to treat strong vs weak ...
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3answers
2k views
Maximum Sharpe portfolio (no short selling restrictions)
Suppose we have $n$ assets whose expected return vector is $r$ and is positive, and whose covariance matrix is $\Sigma$. Is there a closed form or quasi closed form (like the eigenvector of a matrix ...
