Questions tagged [sharpe-ratio]
Excess return per unit of deviation in return.
162
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1answer
18 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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0answers
57 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 ...
2
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1answer
89 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
31 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 ...
3
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1answer
131 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?
4
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1answer
56 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
40 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 ...
2
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0answers
37 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
20 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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43 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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0answers
32 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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0answers
49 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% ...
0
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1answer
87 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
95 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
57 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
21 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{...
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0answers
57 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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0answers
50 views
How/Why Markowitz model is normatitive while CAPM positive?
I've tried economic books but they only give this "should/is" explanations and I still cannot see how it applies to MPT. On the other hand, almost every paper and book gives these adjectives before ...
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0answers
41 views
Calculate best share based on return of investement and standard devation (Without risk free rate)
I have a microeconomics task in investment analysis. How do you pick the best share based on return of investment and standard deviations? The task is like this: 3 shares:
Share A: 10% ROI & 20% ...
1
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1answer
102 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). ...
1
vote
1answer
138 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 ...
1
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2answers
121 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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1answer
75 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 ...
1
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1answer
101 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
53 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
63 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, ...
3
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1answer
146 views
Risk-return ratio using ML default probability
I have access to a very large bond database (>20m rows) where 50% of the set are matured bonds for which a dummy variable identifies whether the bond defaulted or not. The remaining 50% are 'live' ...
2
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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 "...
2
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0answers
93 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 ...
6
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3answers
1k 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
118 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
76 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
75 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
119 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, ...
2
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0answers
198 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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1answer
1k 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
217 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
50 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
238 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 ...
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4answers
456 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
181 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 ...
2
votes
1answer
805 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 ...
1
vote
1answer
76 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 ...
2
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1answer
148 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 ...
1
vote
1answer
201 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
336 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 ...
2
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0answers
410 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 ...
4
votes
1answer
372 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
85 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 ...
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0answers
143 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, ...
