All Questions
Tagged with sharpe or sharpe-ratio
284 questions
2
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0
answers
51
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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 "...
- 550
2
votes
0
answers
446
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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 ...
- 500
8
votes
3
answers
7k
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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 ...
- 913
1
vote
1
answer
599
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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: $$[1.15, 1.2, 0.7]$$ ...
- 25
0
votes
0
answers
244
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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
...
- 550
3
votes
2
answers
527
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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: $$\frac{𝑟−𝑟_𝑓}{𝜎{(𝑟−𝑟_𝑓)}}$$ or that of the return: $$\frac{𝑟−𝑟_𝑓}{𝜎{(𝑟)}}$$
- 31
0
votes
2
answers
497
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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, ...
- 606
2
votes
0
answers
425
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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
votes
1
answer
11k
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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 ...
2
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0
answers
2k
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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 ...
- 173
0
votes
1
answer
100
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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!
3
votes
3
answers
1k
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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 ...
- 131
1
vote
4
answers
2k
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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 ...
- 343
0
votes
1
answer
818
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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 ...
- 269
6
votes
1
answer
4k
views
How to measure the Sharpe Ratio of a high frequency trading strategy?
The Sharpe Ratio is defined as Sharpe ratio = (Mean portfolio return − Risk-free rate)/Standard deviation of portfolio return.
Unfortunately, this does not make ...
- 222
1
vote
1
answer
139
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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 ...
- 31
2
votes
1
answer
1k
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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 ...
- 33
1
vote
1
answer
809
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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 = ...
- 33
3
votes
2
answers
2k
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performance measure using pnl series
I have a time series of \$pnl of a strategy and nothing else. Can i use it to come up with some sort of a performance measure adjusted for risk? Is $$ \frac{average(\$pnl)} {sigma(\$pnl)}$$ ok to use ...
- 343
2
votes
0
answers
1k
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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 ...
- 21
4
votes
1
answer
3k
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What is the industry standard way of calculating and annualizing performance metrics?
Say I am looking at a performance report for a hedge fund manager who trades mostly equities, and they provide me a list of monthly returns for the past 5 years. What is the industry standard way to ...
- 247
1
vote
0
answers
216
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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 ...
- 101
3
votes
0
answers
262
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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, ...
- 41
4
votes
1
answer
1k
views
Portfolio Allocation given Sharpe Ratio
If there are two portfolios with sharpe ratios of 1.2 and 0.5, what would be the allocation rationale.
If the correlation between portfolios is:
$a. 0 $
$b. 0.8 $
$c.-0.8 $
I see there is a ...
- 269
12
votes
2
answers
15k
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How to calculate Sharpe Ratio from $ returns?
I have a pairs strategy that I am trying to calculate the sharpe ratio for. Currently I am using python for my analysis and calculation. I have a dataframe that contains the cumulative returns in $'s ...
- 141
4
votes
2
answers
5k
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maximize Sharpe ratio in portfolio optimization
I am trying to understand how to maximize Sharpe ratio in portfolio optimization.
$\boxed{\begin{align}\max\>&\frac{r^Tx-r_f}{\sqrt{x^TQx}}\\ & \sum_i x_i = 1\\ & x_i\ge 0\end{align}}$
...
- 423
6
votes
1
answer
817
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What is the relation between Relative Risk Aversion and Market Price of Risk
If we assume that the preferences of investors in a market aggregate to display the following utility function
$$u(W)=\dfrac{1}{1-\gamma}W^{1-\gamma},\quad \gamma>0,\quad \gamma\neq1$$
then from$...
- 147
0
votes
0
answers
315
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 ...
- 206
5
votes
3
answers
3k
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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 ...
- 207
2
votes
1
answer
940
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Many quants optimize sharpe ratios, sortino ratios, or anything of the form A/B. What about maximizing something of the form (AB)/(CD)?
The Sharpe ratio is defined as return/risk, generally as mean(ret)/sd(ret), where ret represents the data set of returns of an investment. However, I have seen other ratios that I also like. What I ...
5
votes
0
answers
464
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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. ...
- 500
0
votes
2
answers
2k
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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 ...
- 21
3
votes
1
answer
596
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how is the sharpe ratio (or other risk/return measure) computed for a bond?
What is the industry norm to compute a sharpe ratio for a bond?
For a stock one would typically take a time series of daily returns, compute the average daily return, compute the standard deviation ...
- 1,578
2
votes
1
answer
155
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 ...
- 23
1
vote
1
answer
161
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Can someone please verify or disprove this Sharpe Ratio math logic for me
I want to start by stating a problem that I wanted to figure out initially so that this all ties in somehow. I initially wanted to figure out if individual securities in an efficient portfolio all ...
- 75
3
votes
1
answer
235
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Risk Compensation
I try to understand the different ways to compensate for risk.
In the CAPM, when we plot the excess return against the risk, we find that portfolios of interest lie on the efficient frontier (i.e. ...
- 151
3
votes
1
answer
884
views
Log returns: volatility, outperformance, Sharpe/information ratios
I have developed the habit of simply stating that a 21% return compared to a 10% benchmark return means that the outperformance was 10% (not 11%). So, treating the whole thing in a multiplicative way, ...
- 194
4
votes
5
answers
1k
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Logic behind sharpe ratio
I have a confusion regarding how the sharpe ratio is derived. My question is why the denominator contains the standard deviation of returns of portfolio? I mean why did someone came to this conclusion ...
2
votes
1
answer
482
views
Sharpe Ratio of ETFs in R
Suppose I want to calculate the Sharpe ratio given a risk free rate of 0.05 for a portfolio consisting of assets from 500 ETFs. How can I do so in R given the data I've collected thus far in my R code?...
- 205
5
votes
2
answers
4k
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mean variance optimization vs max sharpe ratio
I keep reading/hearing that the results from mean-var optimization is max Sharpe ratio. It seems making sense if you fix either target return or target risk, but in general, it doesn't seems right, ...
- 51
2
votes
1
answer
714
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p-value of Sharpe Ratio Differences
I am trying to understand what was done in this study by Research Affiliates on the small cap anomaly.
Looking at Table 1, how are the authors actually calculating the p-value?
I have read that the ...
- 125
0
votes
1
answer
630
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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 ...
- 113
0
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1
answer
4k
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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 ...
- 103
0
votes
2
answers
330
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 ...
- 101
2
votes
2
answers
767
views
How much capital to allocate between two trading strategies given average daily P&L and their Sharpe Ratios?
Let's say you have two trading strategies and all you're given is information about their average daily P&L and the Sharpe ratio of each strategy. Trading strategy A's daily average P&L is 10,...
- 222
3
votes
0
answers
758
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 ...
- 91
0
votes
1
answer
2k
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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?
- 111
3
votes
1
answer
399
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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 $
- 317
1
vote
2
answers
1k
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Sharpe Ratio, risk free rate [closed]
when comparing the Sharpe Ratio (SR) of two different funds, does it make a difference, whether I use excess returs (returns - risk free rate) or returns (without dedcuting the risk free rate, ...
- 113
3
votes
1
answer
371
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Calculate Sharpe ratio for only one return [closed]
I have only one return for calculating sharp ratio. As you know, we should calculate standard deviation of returns and standard deviation of one item is 0. Suppose that the single return is 0.1 and ...
- 286