# Questions tagged [sharpe-ratio]

Excess return per unit of deviation in return.

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115 views

### 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 ...
95 views

### 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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166 views

### 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 ...
1 vote
322 views

### 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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256 views

### 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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199 views

### 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 ...
1 vote
117 views

### 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 ...
695 views

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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1 vote
644 views

### 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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78 views

### 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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### 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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1 vote
308 views

### 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 ...
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618 views

### 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 ...
1 vote
418 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 ...
74 views

### 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 ...
1 vote
457 views

### 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 ...
224 views

### 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 ...
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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.
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### 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 ...
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966 views

### 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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### 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 ...
345 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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