# Questions tagged [sharpe-ratio]

Excess return per unit of deviation in return.

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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 ...
610 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?
142 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 ...
133 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 ...
67 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 ...
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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### 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% ...
136 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 ...
165 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 ...
171 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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### 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 IR=\frac{E(r_1)-E(r_2)}{\sqrt{Var(r_1-r_2)}}, \end{...
84 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 ...
219 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). ...
444 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 ...
209 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 ...
170 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 ...
263 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. ...
98 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: ...
115 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, ...
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 "...
159 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 ...
3k 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 ...
224 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: $$[1.15, 1.2, 0.7]$$ ...
129 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 ...
82 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: $$\frac{šāš_š}{š{(šāš_š)}}$$ or that of the return: $$\frac{šāš_š}{š{(š)}}$$
243 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, ...
298 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) ?
4k 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 ...
628 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 ...
57 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!
540 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 ...
822 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 ...
351 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 ...
1k views

### How to measure the Sharpe Ratio of a high frequency trading strategy?

The Sharpe Ratio is defined as Sharpe ratio = (Mean portfolio return ā Risk-free rate)/Standard deviation of portfolio return. Unfortunately, this does not make ...
97 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 ...
370 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 ...
318 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 = ...
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### 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 ...
2k 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 ...