Questions tagged [sharpe-ratio]

Excess return per unit of deviation in return.

53 questions with no upvoted or accepted answers
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1answer
311 views

Significance testing of average returns from Sharpe ratio

I'm aware that one way to do significance testing on a strategy is based on the sampling distribution of its Sharpe (see, e.g., Lo, 2002 and Opdyke, 2008). However, it appears to me that there's ...
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0answers
294 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. ...
3
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2answers
99 views

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 ...
3
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0answers
227 views

How to derive the CAPM from maximizing the Sharpe ratio?

I know how to derive at the CAPM from a microeconomic foundation. In a recent University course I stumbled over a slide that derived the CAPM solely from the Sharpe ratio: I cant come up with that ...
3
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2answers
190 views

Sharpe ratio with CVaR for denominator and different investor utility functions

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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0answers
180 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, ...
3
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0answers
252 views

suitable benchmark to use for Sharpe ratio of power trading strategy

I have a algo which is trading a certain power contract. For calculating the Sharpe ration what would be a suitable benchmark to use?
2
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0answers
45 views

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 ...
2
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0answers
142 views

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, ...
2
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0answers
104 views

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 ...
2
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0answers
65 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 ...
2
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0answers
37 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 ...
2
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0answers
71 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
90 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 ...
2
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0answers
39 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
164 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 ...
2
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0answers
303 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) ?
2
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0answers
689 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 ...
2
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0answers
712 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 ...
2
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0answers
489 views

Differential Sortino Ratio

I'm attempting to optimize a reinforcement learning system to maximize risk adjusted returns. I have currently defined the reward as the differential Sharpe ratio at each step: the influence of the ...
2
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0answers
212 views

Proof that Sharpe ratio of the benchmark is related to the maximal information ratio and Sharpe ratio

I understand the economic logic behind it, that the active portfolio with the highest information ratio will also have the highest Sharpe ratio, but I can't see how $SR_B^2 = SR_P^2 - IR^2 $
2
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0answers
178 views

Sharpe Ratio for loans

I am trying to calculate the sharpe ratio for a set of loans. These loans have already matured and I know if they were good or not: grades are the different grades of the loans. interest rate is the ...
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0answers
31 views

Did annual Sharpe ratio follows T distribution?

Under some special condition, Sharpe ratio can be annualized by multiply $\sqrt{252}$, Since daily Sharpe ratio ($\frac{mean(r)}{std(r)}*T$) follows student T distribution with degree of freedom T-1, ...
1
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1answer
51 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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0answers
55 views

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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41 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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64 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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46 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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0answers
81 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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0answers
35 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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110 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
1k views

What is the Kelly Criterion for continuous probability case?

Given return of a portfolio or a single asset modeled as a continuous, but not necessarily gaussian, probability distribution, what's the Kelly criterion equation? I've heard that it's simply the ...
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0answers
30 views

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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54 views
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20 views

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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42 views

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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0answers
40 views

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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0answers
260 views

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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0answers
47 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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0answers
17 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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0answers
186 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
36 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? ...
0
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0answers
187 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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0answers
71 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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0answers
78 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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0answers
175 views

Deriving Single Index Model (Market Model)

$R_{it}=\alpha_i+\beta_i\cdot R_{mkt}+\epsilon_{it}$ $R_{it}$ is the return of the stock of observation $R_{mkt}$ is the return of the reference market $\beta_i$ is the regression coefficient between ...
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23 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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135 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 ...
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1answer
271 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, ...
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0answers
185 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 ...