Questions tagged [sharpe-ratio]
Excess return per unit of deviation in return.
204
questions
0
votes
1answer
2k views
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 <...
3
votes
2answers
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 ...
7
votes
1answer
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 ...
2
votes
1answer
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 ...
6
votes
2answers
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) ...
8
votes
3answers
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 ...
1
vote
1answer
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?
4
votes
2answers
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 ...
2
votes
2answers
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 ...
4
votes
1answer
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 ...
15
votes
4answers
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?
4
votes
1answer
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 ...
4
votes
1answer
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 ...
0
votes
0answers
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.
1
vote
3answers
1k views
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 ...
2
votes
0answers
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 ...
3
votes
0answers
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?
4
votes
1answer
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 ...
4
votes
2answers
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 ...
5
votes
3answers
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 ...
2
votes
2answers
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).
...
2
votes
1answer
203 views
Hansen-Jagannathan bounds derivation: last step is not clear
Pennachi's "Asset Pricing" chapter 4 derives:
$$
\frac{E[R_{i}-R_{f}]}{\sigma_{R_{i}}}=-\rho_{m_{01},R_{i}}\frac{\sigma_{m_{01}}}{E[m_{01}]}
$$
Then, he states that the fact that $-1\leq \rho_{m_{01}...
3
votes
1answer
554 views
How do i test the significance of Sharpe ratio of a strategy using bootstrap
How do i test the significance of Sharpe ratio of a strategy whether it is any different from another strategy ?? How do i get a p-value out of it ?
What should be the H0 in the hypothesis testing ?
...
2
votes
2answers
738 views
Sharpe Ratio and time spent in loss
Is it possible to express, given an annualized Sharpe Ratio value, what is an expected maximum/average time spent in a draw-down or something in this manner?
E.g. with SR of 10, you'd expect to spend ...
3
votes
2answers
11k views
Sharpe Ratio, annualized monthly returns vs annual returns vs annual rolling returns?
I would like to calculate the Yearly Sharpe Ratio on MSCI World index
I have monthly values of the index that falls back up to Jan/1970, hence about: 44 years, 528 months
In order to calculate ...
11
votes
2answers
3k views
Normality assumption in Sharpe ratio
I have read that the Sharpe ratio imposes a normality assumption, but I fail to see how. Standard deviation is statistic for any type of distribution. Anyone have any ideas?
6
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2answers
1k views
Calculate Daily Returns for Sharpe Ratio
For the purposes of Sharpe ratio, I calculate a trading strategy's daily returns using realized P/L only:
$$
\frac{K(t + 1) - K(t)}{K(t)},
$$
where $K(t)$ is the cash balance after market close on day ...
7
votes
2answers
862 views
how to choose top n assets?
I have m assets, and have estimated their future returns and covariance matrix.
I would like to invest in an evenly weighted n product basket from this universe, where 0<n<m.
How do i find the ...
8
votes
2answers
8k views
How do I calculate Sharpe ratio from P&L?
Say I have a market-making strategy that trades intraday. I start with a flat position and finish flat too. I end up with a daily P&L $p_{today}$. Over a year of trading I get $\vec{p} = (p_1,\...
13
votes
1answer
4k views
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 ...
2
votes
4answers
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 ...
3
votes
1answer
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) ...
5
votes
1answer
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 ...
3
votes
1answer
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-...
3
votes
2answers
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 ...
4
votes
1answer
956 views
How to download risk free rate?
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 ...
2
votes
1answer
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 ...
9
votes
2answers
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 ...
16
votes
2answers
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,...
3
votes
3answers
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?
1
vote
1answer
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 ...
7
votes
2answers
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 ...
12
votes
4answers
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
...
21
votes
6answers
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 ...
15
votes
1answer
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-...
26
votes
10answers
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?
7
votes
2answers
2k views
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 ...
4
votes
2answers
456 views
How is someone's Sharpe ratio recorded and communicated?
When I read about, say, some hedge fund wanting people with such-and-such Sharpe ratio, how is that ratio recorded and communicated to the interested party? I mean, do people just take it on faith ...
14
votes
1answer
640 views
Can we use White's reality check to compare two Sharpe ratios?
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 ...
