# Questions tagged [sharpe-ratio]

Excess return per unit of deviation in return.

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### Multi-year annualized Sharpe Ratio

I'm taking a quiz, and trying to calculate the annualized Sharpe ratio of 11 years' worth of SPY fund monthly returns vs. a risk free investment return of 1.5%. When I write the function in Excel as <...
226 views

### Proper way to calculate the realized indiviual stock sharpe ratio

From the textbook, sharpe ratio is (return-riskfree rate)/risk However I wonder if I can use (return-index return)/risk, where the index acts as the benchmark, to calculate the sharpe ratio? I am ...
308 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 ...
1k views

### Sharpe Ratio versus Cumulative Returns

I was asked whether Sharpe Ratio was a better measure than Cumulative Returns, in the context of hedge funds. To me, personally, Sharpe Ratio is a more important measure. By definition, it tells us ...
3k views

### Annualized Sharpe Ratio calculation

I'm trying to replicate the annualized Sharpe ratio of an buy-and-hold strategy for the Dow Jones Industrial Average index for a period consisting of multiple years. I got the daily DJIA (closing) ...
4k views

### What is an acceptable Sharpe Ratio for a prop desk?

What should be the value of a Sharpe Ratio for an intraday quantitative strategy to be accepted by a bank or hedge fund's prop desk? Let's assume the returns are daily changes in account equity, close ...
734 views

### How to calculate returns and sharpe ratio for futures?

What is the industry standard way to calculate returns, which will be used to calculate sharpe ratio for e-mini S&P500?
3k views

### Difference between Sharpe Ratio and Information Ratio

I am finding it difficult to understand the difference between the sharpe ratio and the information ratio and the relationship between the two, and cannot find a decent reference that breaks it down ...
658 views

### Sharpe Ratio for strategies with different rebalancing period

Strategies published in journal papers like SMB, HML, UMD have annualized sharpe ratios around 0.5. These long-short portfolios are formed with monthly rebalance. People who backtest some daily ...
389 views

### Annualised Sharpe Ratio for Index vs Index Benchmarking

I am currently writing a paper about the performance characteristics of alternative energy equity indexes and am therefore comparing them to their benchmark indexes (msci world, etc). To calculate the ...
8k views

### Sharpe ratio and leverage

Does leverage affect the Sharpe ratio? If my Sharpe is 2 at no leverage, does it change, fall by half say, at a different leverage?
154 views

### Stochastic Optimal Control for ratios

Do you know any good papers on methods of Stochastic Optimal Control and Hamilton-Jacobi-Bellman(HJB) for optimization of different ratios(Sharpe, M2, Sortino, Sterling, etc.)? Meaning that using ...
2k views

### Sortino Ratio calculation

I've been using an Excel template to calculate the Sortino ratio for my automated trading strategies. http://investexcel.net/calculate-the-sortino-ratio-with-excel Basically I input my monthly ...
102 views

### How do I find the Sharpe Ratio?

Suppose I'm given two assets, $x_0$, $x_1$ and the stochastic discount factor m. How do I find $m_p$, then use it to compute Sharpe($R_p$)? Any help is greatly appreciated.
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### Sharpe Ratio vs Net Profit vs max drawdown

When evaluating the performance of an algorithm, what should hold more importance? Sharpe Ratio , Net profit or max drawdown? For instance, I have two algorithms one performs very good on Stocks with ...
177 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 ...
250 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?
2k views

### How to calculate the Sharpe ratio for market neutral strategies?

Suppose I am long one stock and short an index in a ratio effectively making market beta as zero and I close the position with some positive P&L. How should I calculate the return for the ...
1k views

### Set up sharpe ratio with 2 risky portfolio

You are considering an investment in the stock. In the stock market, there are two risky stocks (A and B) and a risk free claim, C (you can think of it as the t-bill). The covariances and returns of ...
2k views

### Bootstrapping Sharpe Ratios

A similar question to this was asked here: How do i test the significance of Sharpe ratio of a strategy using bootstrap I have bootstrapped the original time series (using block bootstrapping) and ...
4k views

### Sharpe Ratio - my own calculation differs from Yahoo finance, Morningstar

I am trying to compute the Sharpe ratio for my portfolio. To check that I am doing this correctly, I am first trying to compute it for SPY (the S&P 500 index). ...
203 views

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### Intuitive explanation of the Hansen-Jagannathan bound

The Hansen-Jagannathan bound states that the maximum Sharpe ratio of a portfolio can't exceed the ratio of the standard deviation of a stochastic discount factor to its mean. I more or less understand ...
3k views

### compute sharpe ratio for options?

Calculating sharpe ratio for shares is a straight forward task: (average returns - risk free ) / standard deviation. However i remain baffled as to how to tackle the task for options, can someone ...
800 views

### What is the correct Stutzer index and Sharpe ratio relation, assuming a normal returns distribution?

Assuming the returns distribution is normal, then there is a relation between Stutzer index and Sharpe ratio. However, I found in the following paper 2 different equation: Paper I (page 10-11)‎ ...
603 views

### How is the Sharpe Ratio presented in fund profiles usually calculated?

To compare my stock portfolio generator with managed funds performance, I want to calculate the Sharpe Ratio of my historic portfolios with the numbers found on the fund company web sites or in ...
1k views

### Risk-free rate for ex-post evaluation of investment strategy

When evaluating the strategy ex-post using e.g. Sharpe ratio, what should one use as the risk-free rate? Let's suppose I am using a 1Y sample of weekly returns, sampled between 2012-01-01 and 2012-12-...
3k views

### Calculating Geometric mean

I need to annualize daily returns for about 120 firms for over a period of 10 years. I chose to calculate the geometric return because 1) it is the actual return 2) to avoid the asymmetric effect of ...
956 views

I've been trying to download the national interest rates for some countries. When i use Datastream, it only gives me the currency return (while i need yield). Can someone please tell how to ...
230 views

### How to deal with different amount of td's in computing Sharpe Ratio

In calculating the Sharpe Ratio, should I take into account the days were I have 0 return due to non-trading day? Another user posted a similar question but this was related to trading days with no ...
4k views

### Computing the Sharpe Ratio

The building blocks of the Sharpe ratio—expected returns and volatilities—are unknown quantities that must be estimated statistically and are subject to estimation error. The main problem I have is ...
10k views

### Kelly criterion and Sharpe ratio

Whats the relationship between the Kelly criterion and the Sharpe ratio? $$f=\frac{p(b+1)-1}{b}$$ where $f$ is a percentage of how much capital to place on a bet, $p$ is the probability of success,...
1k views

### Sharpe ratio in days with no open positions

Should I include or not the days a strategy has no open positions (thus no returns) in the Sharpe ratio calculation?
849 views

### Performance Stats of Pairs Trades

This is something I've been thinking about for a while but I can't reach a clear conclusion. When we calculate, for example, the profit factor for a pairs trading strategy, do we treat each pairs ...
6k views

### How to define the objective function for a custom optimization problem?

I would like to find the allocations that would minimize some user-defined metric (Sortino, minimum drawdown, etc) for a portfolio of assets. How would one go about formulating the objective ...
1k views

### Is this a common variation of sharpe ratio?

As an aside on his answer on another question Freddy said: Sharpe ratio is an often cited metric, though I do not like it too much because you are penalized for out-sized positive returns while I ...
26k views

### How high of a Sharpe ratio is implausibly high for a low-frequency equity strategy?

I am looking to convince someone that an annualized Sharpe Ratio of 7 is 'extremely high' for a low frequency (daily rebalancing, say) long-short technical strategy on U.S. equities. I was hoping for ...
642 views

### How does one measure the effect of latency on potential returns?

I am looking to evaluate the hypothetical advantage one trading system has over another in terms of the possible returns given their latency. Irene Aldridge wrote a piece (How Profitable Are High-...
20k views

### Should I use an arithmetic or a geometric calculation for the Sharpe Ratio?

What are the advantages/disadvantages of using the arithmetic Sharpe Ratio vs the geometric Sharpe Ratio? Is one more correct? Or is one better in certain circumstances?
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### How should I compute the Sharpe Ratio for mid-frequency pair trading strategy?

I have a pair trading strategy with positions that last 3-5 days and trades 2-3 times a month. By design, all the trades are profitable until the cointegration is broken. Should I calculate the ...
I read a paper from Ledoit and Wolf that proposes a method to compare two Sharpe ratios and a paper from White that proposes a method to compare $n$ trading rules. My question is: Can we use White's ...