Questions tagged [sharpe-ratio]

Excess return per unit of deviation in return.

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80 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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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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109 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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1answer
116 views

How to correctly use SharpeRatio.annualized function with daily returns and proxy for daily risk free rate

I am not sure if am correctly using SharpeRatio.annualized function. I am passing following parameters (dailyRet, dailyRF, scale = 252), where dailyRet is an XTS type for daily returns, dailyRF is an ...
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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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2answers
246 views

question regarding sharpe ratio calculation

Hi All: I looked in the search icon for questions related to Sharpe Ratio but I couldn't find what I was looking for. My question is about how to calculate it. I will explain the scenario and then ask ...
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116 views

calculating sharpe and sortino ratio given monthly returns [closed]

suppose I have (fictitious) monthly returns: ...
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3answers
195 views

What is stopping me from using high leverage on high Sharpe strategies?

Say the example market return is 12% for the year, I managed to develop a 3-4 Sharpe strategy that makes 6% a year. If I can borrow twice the size of my original fund at 0% interest, I can make more ...
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52 views

Should the strategy shut down period be considered when calculating Sharpe?

When computing the Sharpe for a strategy, should the shut down period be considered?
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122 views

If you have the (annualised) Sharpe ratios for some individual years, can you get the overall Sharpe ratio?

Suppose someone is doing some daily trading and tells you their annualised sharpe ratios for the following years: 2004: 0.7 2005: 1.2 2006: 1.1 2007: -0.2 Is it ...
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1answer
100 views

Sharpe Ratio Graphed Over Time

I looked and could not find a suitable answer to my question already, so: What is the best way to calculate the Sharpe Ratio over time, given I have about a decade's worth of 1-minute candlesticks? I ...
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2answers
66 views

Portfolio rebalance - How many data back do I need to perform sharpe ratio optimization

if I do a periodical rebalance of my portfolio based on sharpe ratio optimization, how many historical data should I take in account for optimizing with respect to the frequency of rebalancing? For ...
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1answer
110 views

how to relate risk aversion and sharpe ratio in optimisation

I am trying to optimise the following: U(w)=w′μ−λ/2w′Σw which is the typical risk aversion problem. I would like to set lambda in order to have the max sharpe but I cannot find in literature what is ...
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1answer
129 views

How to test signifcance of a sharpe ratio

Let say you have measured a Sharpe Ratio of $S^*$. What is the simplest way (ie no fancy distributions) to do a hypothesis that this is different from $0$? So $H_0: \text{ The sharpe ratio is equal ...
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4answers
287 views

T-bond of what maturity to use as risk-free rate when calculating excess return?

I am comparing different asset classes in order to estimate the expected return and the risk of a portfolio. I have historical data (adjusted close price) for my asset classes for the last 5 years ...
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1answer
71 views

step by step calculation of the sharpe ratio

I am trying to calculate the Sharpe ratio. Suppose I have: $$ x_t = \alpha + \beta y_{t} + \epsilon_{t}$$ $$E[x_{t}] = \alpha + \beta E[y_{t}]$$ $$var[x_{t}] = \beta^2var[y_t] + \sigma^2$$ The ...
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362 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 ...
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3k views

How to maximize the Sharpe ratio given historical closing prices?

I have historical adjusted closing prices for $k$ stocks over $n$ days. I have a budget of $B$ dollars, and I'd like to choose allocations for each of the stocks, $a_{1:k}$, such that I maximize the ...
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1k views

MPT Tangent Portfolio: Buck for the Bang Ratio

The $R_{TP}$ is the tangent portfolio return, but I don't understand the step regarding $\frac{dV(R)}{dw_n}$, you apply this, and how come it get rids of the summation?
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volatilty and Sharpe Ratio of long-short portfolio

What is the proper way to calculate volatility for the long short portfolio? if calculated in a standard way the offsetting positions are driving it down. How about Sharpe Ratio? that has an impact ...
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1answer
39 views

how to use SOFR as risk free rate in portfolio construction

Good afternoof to everyone. I would like to create a portfolio following a multifactorial approach (I have been writing my master's thesis). As I would like to calculate a series of ratios (e.g. ...
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1answer
73 views

Questions about Sharpe Ratio calculation

Let's say I have daily returns. Don't they depend on the risk per trade I am using? Obviously, if I'm risking 2% of equity per trade returns will be drastically different than when I'm using 10%? So ...
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1answer
161 views

Calculating Sharpe Ratio on a per trade basis?

I have a strategy that I've been playing with and trying to backtest. It's of questionable practicality at the moment, but the idea is to pick one stock from the Dow 30 companies to trade right near ...
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1answer
104 views

Which metric is most predictive: Mean, Sharpe, Calmar, …?

Suppose you have created a new trading algorithm: by varying the params of the algorithm, you get a large number of similar trading strategies (e.g. slightly different trigger thresholds, stop loss ...
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1answer
186 views

Which riskfree rate to use for Maximum Sharpe Ratio Portfolio?

I am conducting out of sample backtests of the MV framework. But how exactly do I derive the Maximum Sharpe Ratio portfolio for this? The standard forumula of the Sharpe Ratio is given by: $$\frac{(...
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117 views

ESG Style Analysis

Hi all and thank you in advance. Do you think that implementing a style analysis on ESG equity portfolios is feasible? When I mean style analysis I refer to the seminal paper of Sharpe (1992) but I ...
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1answer
141 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 ...
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2answers
175 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 ...
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58 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!
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1k views

Calculating 10-year Sharpe ratio for a mutual fund in excel?

Probably a very simple question but here goes. I am looking to calculate the Sharpe ratio for some funds in excel (173 funds to be exact). The monthly returns I have are from January 2006 to December ...
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1answer
322 views

Calculate Annualized Return / Annualized Sharpe From Portfolio

If I have a portfolio of stocks that I invest in and out of at different holding periods and different times of the year. How would one calculate the annualized returns and annualized sharpe ratio of ...
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1answer
609 views

when calculating sharpe ratio of a backtest, do you use the historical risk-free rate or the current one?

Say I'm running a few backtests, say 1980-now, 2000-now and 2010-2015. When I'm calculating the Sharpe ratio of these backtests, do I use the risk-free rates associated with those time periods? or ...
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1answer
109 views

How do I loop through all the stocks and find the 10 stocks with the highest Sharpe ratio using R program?

I am recently doing a project, which I need to apply Sharpe ratio to all the stocks. How do I loop through all the stocks and find the 10 stocks with the highest Sharpe ratio using R program? Thanks a ...
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1answer
445 views

What are “df”, “t”, and “p” in these sharpe ratio related estimates?

I am looking at some sharpe ratio related estimates and have not seen Sharpe stats broken down this way before. I don't know what is meant by df, t, and p. Can someone explain that to me? Thank you!...
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52 views

Do I calculate weights of assets correctly?

I solved attached question but I am not sure whether I did part a and c correctly. Is there a way to calculate weights of A and B by just knowing their standard deviation and correlation's value?
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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 <...
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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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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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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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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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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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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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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? ...
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184 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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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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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% ...
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174 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 \begin{equation} IR=\frac{E(r_1)-E(r_2)}{\sqrt{Var(r_1-r_2)}}, \end{...