All Questions
Tagged with sharpe or sharpe-ratio
284 questions
5
votes
3
answers
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 ...
- 879
2
votes
2
answers
5k
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).
...
- 123
2
votes
1
answer
356
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}...
- 143
3
votes
1
answer
822
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 ?
...
- 93
2
votes
2
answers
1k
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 ...
- 311
4
votes
2
answers
14k
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 ...
- 406
15
votes
2
answers
5k
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?
- 159
6
votes
2
answers
2k
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 ...
- 586
7
votes
2
answers
931
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 ...
- 368
9
votes
2
answers
13k
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,\...
- 1,288
13
votes
1
answer
5k
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 ...
- 8,621
2
votes
4
answers
5k
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 ...
- 79
3
votes
1
answer
1k
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) ...
- 335
4
votes
1
answer
711
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 ...
- 247
3
votes
1
answer
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-...
- 3,262
3
votes
2
answers
4k
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 ...
- 127
4
votes
1
answer
1k
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 ...
- 127
2
votes
1
answer
320
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 ...
- 127
13
votes
2
answers
5k
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 ...
- 131
21
votes
2
answers
17k
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,...
- 2,138
5
votes
4
answers
2k
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?
- 1,210
1
vote
1
answer
1k
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 ...
- 311
7
votes
2
answers
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 ...
- 994
12
votes
4
answers
2k
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
...
- 1,427
21
votes
6
answers
30k
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 ...
- 2,876
15
votes
1
answer
768
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-...
- 484
30
votes
11
answers
26k
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?
- 309
7
votes
2
answers
3k
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 ...
- 1,210
4
votes
2
answers
463
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 ...
- 2,052
14
votes
1
answer
729
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 ...
- 141
65
votes
8
answers
115k
views
How to annualize Sharpe Ratio?
If I know the daily returns of my portfolio, I need to multiply the Sharpe Ratio by $\sqrt{252}$ to have it annualized.
I don't understand why that is.
- 711
10
votes
1
answer
2k
views
What is the average Sharpe ratio of volatility arbitrage funds?
Where can I get data on performance metrics for volatility arbitrage funds? I am trying to compare the Sharpe ratio of my strategy to those of the major players.
- 101
30
votes
5
answers
15k
views
Should Sharpe ratio be computed using log returns or relative returns?
I am trying to reconcile some research with some published values of 'Sharpe ratio', and would like to know the 'standard' method for computing the same:
Based on daily returns? Monthly? Weekly?
...
- 2,876
20
votes
2
answers
1k
views
How do you correct Max Draw-Down for auto-correlation?
When returns are auto-correlated, calculating a Sharpe ratio := $\frac {mean(x)}{\sqrt{var(x)}}$, (where $x$ are the returns) is complicated, but basically solved (see, e.g. Lo (2005)). Without the ...
- 464