Questions tagged [sharpe-ratio]
Excess return per unit of deviation in return.
2
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1answer
86 views
Augmenting Sharpe ratio with ML-calculated default probability
I have access to a very large loan database (>20m rows) where 50% of the loan book are historical loans for which a dummy variable identifies whether the loan defaulted or not. The remaining 50% are '...
2
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0answers
26 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 "...
2
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0answers
55 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 ...
5
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3answers
264 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 ...
1
vote
1answer
95 views
A positive Sharpe ratio when portfolio loses money, can that happen or bug in my code?
I'm having a trouble calculating (annualized from daily performance) Sharpe ratio, even though I've read some related posts here.
Say I have a daily performance, for example: $$[1.15, 1.2, 0.7]$$ ...
0
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0answers
37 views
Another variation of the 'Sharpe ratio' in CVaR-based portfolio optimization?
Question
What is the ratio S(p) shown below? Do we have a name for it like 'Sharpe ratio'?
The ratio above is introduced in the academic paper Optimal portfolio selection in a Value-at-Risk framework
...
2
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2answers
68 views
Is the sharpe ratio calculated taking the standard deviation of the portfolio or of the excess return?
Does the formula consider the standard deviation of the excess return: $$\frac{𝑟−𝑟_𝑓}{𝜎{(𝑟−𝑟_𝑓)}}$$ or that of the return: $$\frac{𝑟−𝑟_𝑓}{𝜎{(𝑟)}}$$
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1answer
64 views
Simulated Sharpe Ratio Calculation for Leveraged Portfolio
I've written some VBA code to simulate the effect of borrowing money, investing it, and repaying the loan daily.
PseduoCode:
Start with a portfolio value of P = 1
Each day borrow P, invest 2*P, ...
1
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0answers
54 views
Maximum Sharpe Ratio Portfolio
Conceptually, what are the drawbacks / unforeseen risks of running a portfolio whose weight are derived from what would have maximised the sharpe ratio over the previous time period (last 30 days) ?
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0answers
30 views
Why isn't the Sharpe ratio risk free rate determined for each time period separately?
When calculating the Sharpe ratio why is the same risk free rate (90 day T-Bill) rather than the risk free rate for each individual period used?
0
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1answer
213 views
Portfolio Weight Sum and Negative Weights
I'm calculating the weights of 10 securities in a portfolio for a course project, with the objective of maximizing the sharpe ratio. I'm getting both positive and negative results for weights. The ...
2
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0answers
98 views
How to calculate “Differential Sharpe ratio”?
Instead of using the "sliding the time window" method of calculating the sharpe ratio under online framework,
they've defined "differential sharpe ratio" as such
But under equation 5, you can ...
0
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1answer
39 views
Calculation of Information Ratio
When calculating an information ratio, should the average of monthly returns be used or the cumulative monthly returns be used?
Thanks!
2
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3answers
107 views
Calculating Sharpe Ratio with dynamic position sizing
I'm currently backtesting a mean reversion pairs trading strategy. However, instead of simple long or short trading signals, I'm using multiple "levels", where the further away the spread is from the ...
1
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4answers
278 views
sharpe ratio from regression
Suppose I run a regression of returns of an asset vs some signal. Is there a way to estimate Sharpe ratio of a strategy based on this signal from this regression? Assuming that signal is a real number ...
0
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1answer
71 views
How is breadth for Information Ratio Calculated
An alternative definition of the information Ratio (sharpe ratio) is:
$IR = IC\sqrt{BR}$
I have been reading Grinold and Kahn. I have the following questions for calculating BR:
Q1. If 500 stocks ...
1
vote
1answer
365 views
How to measure the Sharpe Ratio of a high frequency trading strategy?
The Sharpe Ratio is defined as Sharpe ratio = (Mean portfolio return − Risk-free rate)/Standard deviation of portfolio return.
Unfortunately, this does not make ...
0
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1answer
55 views
Sharpe Ratio with Stochastic Interest Rate?
All versions of the Sharpe ratio that I've seen seem to assume that the risk-free rate is constant, and the standard deviation of the excess return in the denominator simplifies to the standard ...
1
vote
1answer
86 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 ...
0
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1answer
63 views
Multi year performance evaluations [closed]
first question here on StackExchange;
I would value your help, I am on excel working with a 3 year / 36 month investment performance. I am calculating the Sharpe Ratio as follows;
Cell KV32 = ...
2
votes
2answers
156 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 ...
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0answers
197 views
Calculating Ex-Post Sharpe Ratio
I'm trying to calculate an Ex-Post Sharpe Ratio for my portfolio and I would appreciate verification I'm doing it correctly.
I have my portfolio's daily returns in one column and my benchmark's ...
-1
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0answers
43 views
How to calculate Sharpe Ratio and recovery factor for this data ? please help me im searching from 1 week
Suppose i have 5 closed trades like the following:-
1- 1 lot EUR/USD and got zero$ profit
2- 1 lot EUR/USD and got-6$ loss
3- 5 lot GBP/USD and got-45$ loss
4- 2 lot EUR/USD and got +20$ profit
...
4
votes
1answer
192 views
What is the industry standard way of calculating and annualizing performance metrics?
Say I am looking at a performance report for a hedge fund manager who trades mostly equities, and they provide me a list of monthly returns for the past 5 years. What is the industry standard way to ...
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0answers
57 views
Definition request - Brownian Motion Characterised by Sharpe Ratio
What is the Stochastic Differential Equation for a "Brownian Motion Characterised by Sharpe Ratio"?
I saw it in a paper ("Lessons from the Mortician: volatility modulation") and the authors do not ...
3
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0answers
94 views
Sharpe ratio for dynamic portfolio
I want to test the performance of my strategy with different rebalancing period. I'm struggle with calculating the overall performance on backtest results and making final conclusions.
For example, ...
4
votes
1answer
199 views
Portfolio Allocation given Sharpe Ratio
If there are two portfolios with sharpe ratios of 1.2 and 0.5, what would be the allocation rationale.
If the correlation between portfolios is:
$a. 0 $
$b. 0.8 $
$c.-0.8 $
I see there is a ...
6
votes
1answer
1k views
How to calculate Sharpe Ratio from $ returns?
I have a pairs strategy that I am trying to calculate the sharpe ratio for. Currently I am using python for my analysis and calculation. I have a dataframe that contains the cumulative returns in $'s ...
2
votes
1answer
622 views
maximize Sharpe ratio in portfolio optimization
I am trying to understand how to maximize Sharpe ratio in portfolio optimization.
$\boxed{\begin{align}\max\>&\frac{r^Tx-r_f}{\sqrt{x^TQx}}\\ & \sum_i x_i = 1\\ & x_i\ge 0\end{align}}$
...
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0answers
151 views
What do you optimize for? Sharpe ratio, profit factor, profit/drawdown, etc
In my experience,
strategies perform best on OS (OutOfSample) data, when I optimize them for maximum Sharpe ratio (on InSample data)
at the opposite extreme, when I optimize strategies for ...
4
votes
1answer
212 views
What is the relation between Relative Risk Aversion and Market Price of Risk
If we assume that the preferences of investors in a market aggregate to display the following utility function
$$u(W)=\dfrac{1}{1-\gamma}W^{1-\gamma},\quad \gamma>0,\quad \gamma\neq1$$
then from$...
0
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0answers
93 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 ...
2
votes
1answer
696 views
How can I find the portfolio with maximum Sharpe Ratio - Using Lagrange Multipliers
In Markowitz' portfolio theory we can construct portfolios with the minimum variance for a given expected return (or vice versa). Across expected risks, this traces out the well-known efficient ...
1
vote
1answer
254 views
Many quants optimize sharpe ratios, sortino ratios, or anything of the form A/B. What about maximizing something of the form (AB)/(CD)?
The Sharpe ratio is defined as return/risk, generally as mean(ret)/sd(ret), where ret represents the data set of returns of an investment. However, I have seen other ratios that I also like. What I ...
5
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0answers
179 views
Bayesian strategy selection
I have N strategies/signals that I would like to allocate to. I want to estimate an estimate of future performance based off of recent realized performance (momentum of strategies per se - e.g. ...
0
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0answers
718 views
What is the CAPM implication for Sharpe Ratios?
Suppose a world where the CAPM holds, i.e. stocks with higher beta have higher expected returns. What would be in this world the implication for Sharpe Ratios? Would stocks with higher beta also have ...
0
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2answers
485 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 ...
4
votes
1answer
249 views
how is the sharpe ratio (or other risk/return measure) computed for a bond?
What is the industry norm to compute a sharpe ratio for a bond?
For a stock one would typically take a time series of daily returns, compute the average daily return, compute the standard deviation ...
1
vote
1answer
82 views
How to correctly use SharpeRatio.annualized function with daily returns and proxy for daily risk free rate
I am not sure if am correctly using SharpeRatio.annualized function. I am passing following parameters (dailyRet, dailyRF, scale = 252), where dailyRet is an XTS type for daily returns, dailyRF is an ...
1
vote
1answer
119 views
Can someone please verify or disprove this Sharpe Ratio math logic for me
I want to start by stating a problem that I wanted to figure out initially so that this all ties in somehow. I initially wanted to figure out if individual securities in an efficient portfolio all ...
4
votes
1answer
133 views
Risk Compensation
I try to understand the different ways to compensate for risk.
In the CAPM, when we plot the excess return against the risk, we find that portfolios of interest lie on the efficient frontier (i.e. ...
3
votes
1answer
183 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, ...
3
votes
5answers
325 views
Logic behind sharpe ratio
I have a confusion regarding how the sharpe ratio is derived. My question is why the denominator contains the standard deviation of returns of portfolio? I mean why did someone came to this conclusion ...
2
votes
1answer
295 views
Sharpe Ratio of ETFs in R
Suppose I want to calculate the Sharpe ratio given a risk free rate of 0.05 for a portfolio consisting of assets from 500 ETFs. How can I do so in R given the data I've collected thus far in my R code?...
2
votes
2answers
881 views
mean variance optimization vs max sharpe ratio
I keep reading/hearing that the results from mean-var optimization is max Sharpe ratio. It seems making sense if you fix either target return or target risk, but in general, it doesn't seems right, ...
3
votes
1answer
235 views
p-value of Sharpe Ratio Differences
I am trying to understand what was done in this study by Research Affiliates on the small cap anomaly.
Looking at Table 1, how are the authors actually calculating the p-value?
I have read that the ...
0
votes
1answer
190 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 ...
0
votes
1answer
2k views
How to maximize the Sharpe ratio given historical closing prices?
I have historical adjusted closing prices for $k$ stocks over $n$ days. I have a budget of $B$ dollars, and I'd like to choose allocations for each of the stocks, $a_{1:k}$, such that I maximize the ...
0
votes
2answers
68 views
If you have the (annualised) Sharpe ratios for some individual years, can you get the overall Sharpe ratio?
Suppose someone is doing some daily trading and tells you their annualised sharpe ratios for the following years:
2004: 0.7
2005: 1.2
2006: 1.1
2007: -0.2
Is it ...
2
votes
2answers
188 views
How much capital to allocate between two trading strategies given average daily P&L and their Sharpe Ratios?
Let's say you have two trading strategies and all you're given is information about their average daily P&L and the Sharpe ratio of each strategy. Trading strategy A's daily average P&L is 10,...
