All Questions
Tagged with sharpe or sharpe-ratio
284 questions
0
votes
1
answer
60
views
Sharpe Ratio using Daily Returns or Percent Returns
Say I have a daily PnL series:
Date
PnL
1/1
4
1/2
3
1/3
-1
1/4
5
To calculate the annualized sharpe ratio, can I do: mean(PnL) / std(PnL) * sqrt(252)?
This gets me 16.5.
Alternatively, I've read ...
- 1
0
votes
1
answer
103
views
sharpe ratio of 2 uncorrelated strategies
I was asked this question the other day:
By having two uncorrelated portfolios, one with sharpe ratio 2 and the other with sharpe ratio 5, what is the max sharpe ratio we can achieve.
I tried ...
1
vote
1
answer
118
views
Using Sharpe ratio as a measure of performance seems misleading
By defintion, doesn't the Sharpe ratio use a denominator that is the risk, and that is the risk that's taken up until right now, and if only the risk changes and nothing else, the ratio for an ...
0
votes
1
answer
132
views
Annualisation of volatility
we all know the standard way of annualisation of volatility for a series of returns is to multiply by SQRT (252).
What if I have a sequence of overlapping 5 day PL returns used as a series of returns ...
- 13
1
vote
1
answer
76
views
Calculate Sharpe Ratio, Annualized Return, and Volatility for Uneven Cashflows and Mixed Asset Classes?
I am working on a portfolio problem and encountered some challenges related to calculating key performance metrics. I would greatly appreciate any guidance on the following:
Say, I started with an ...
- 87
0
votes
0
answers
45
views
Calculating the 3 Year and 5 Year Sharpe Ratio of a Fund Using Monthly Returns
I am trying to calculate the Sharpe ratio of monthly returns of 5 years for a mutual fund. My process so far has been as follows:
Calculate the excess monthly returns ie take each months returns and ...
- 1
2
votes
1
answer
228
views
Proof of weights maximizing sharpe of a portfolio
Given a portfolio of $n$ assets with mean vector $\mu$ and correlation matrix $\Sigma$, the optimal weights $w$ on the $n$ assets to maximize overall sharpe is found by
$$\max_{w:||w||=1}{\dfrac{\mu^T ...
- 123
-1
votes
1
answer
140
views
How to calculate sharpe ratio
I have end of month Gold prices, Returns of treasury (in percentages) & end of day NASDAQ index over 20 years. I want to compute risk adjusted returns by finding sharpe ratio. Im confused how do i ...
0
votes
0
answers
84
views
What does it mean when a systematic strategy yields significantly different backtesting results with minimal changes to the backtesting starting date?
I am testing a simple systematic strategy: I buy a certain product once every five business days and sell it after three business days from the buy date.
In the backtest, this is how I define my ...
- 1
0
votes
1
answer
82
views
Subpar Results of Historical Portfolio Optimization with Few Assets
Probably a simple question to the P-Quants here, but if you performed portfolio optimization using a historically calibrated covariance matrix (a rolling month of daily returns) with very few assets, ...
- 2,231
0
votes
0
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57
views
Can I add Sharpe Ratio with information ratio in convex way
Sharpe Ratio can be turned into a convex function. And information ratio as well.
Supppose I add these ratios as follows:
(SR + 3 IR ) / 2
Can this function transfer into convex?
How should I do it?
- 1
0
votes
1
answer
175
views
Calculating returns on sequence of trades with zero starting capital
Background
I am trying to calculate the returns on a sequence of trades performed by an entity, where I do not know the starting capital. Therefore I assume a starting capital of zero. From these ...
- 1
1
vote
1
answer
184
views
How to create a long-short portfolio on an academic basis
This question may have been asked before, but unfortunately the answers didn't help me very much.
It's about how to create long short portfolios. In the papers you often read that they have created ...
- 13
-3
votes
1
answer
173
views
sharpe ratio, convert into convex function, not understand that constraint, [duplicate]
I am reading about tranforming sharpe ratio into convex problem
After some following, its converted into min xTxy s.t. (u-rf e)x = 1
...
- 1
3
votes
2
answers
232
views
"Risk Matters Hypothesis" - does it really?
Risk.net has recently run a story about the "risk matters hypothesis" which refers to Sharpe’s Arithmetic and the Risk Matters Hypothesis by Haghani, Ragulin and White (2023).
If I ...
- 233
0
votes
1
answer
66
views
Maximze Sharpe ratio from matlab to python [closed]
I know there matlab library funtion for
Optimzing Sharpe ratio
estimateMaxSharpeRatio, it mentioned it use direct method
How can i do the same thing in python
Is there any python libraries
Or need ...
- 1
0
votes
0
answers
67
views
Conic form of maximizing Sharpe ratio with long-short constraints
I read the blog post of mosek software package and learn how to transform the original form of maximizing the Sharpe ratio to the conic form.
We consider the following optimization problem
$$ \max_{x\...
0
votes
2
answers
185
views
Calculating Annualized Sharpe Ratio
I'm calculating the annualized Sharpe Ratio for a strategy with quarterly trades and would appreciate your input on my approach:
Trades per year: 4
Average return per trade: 1.6%
Standard deviation of ...
- 1
0
votes
1
answer
108
views
How to annualize with different trading days in single portfolio
Nowadays, traditional stocks have 252 trading days, and cryptocurrency have 365 trading days.
If I want to find the annualized Sharpe ratio, how do I do that? Each element multiplied by 252 / 365?
And ...
- 1
0
votes
1
answer
198
views
Question about marginal risk contribution / portfolio volatility decomposition
I am trying to understand the rule where you add a new asset to a portfolio if its Sharpe ratio is greater than the product of the portfolio sharpe ratio and the correlation between the portfolio and ...
- 1
1
vote
1
answer
681
views
Sharpe ratio 1 and probability to lose money
I came across the following interview problem and I am looking for a possible solution. We have a strategy with risk free return 0 and sharpe ratio 1. What is the probability to lose money over four ...
- 13
0
votes
0
answers
69
views
Formal Sharpe Ratio Calculation
Would appreciate clarity from senior quants on the correct way to calculate sharpe
Back in the zero interest rates days, I saw some senior quants would calculate sharpe ratio as avg(pnl)/std(pnl) and ...
- 1
0
votes
0
answers
41
views
Sharpe ratios (and other risk-adjusted metrics) on Terminal wealth (long-horizon payoffs)
I'm exploring financial simulations with bootstrapped returns (TxNBoot) to calculate long-horizon returns. Terminal wealth (e.g compounded returns at T) is a vector of payoffs (NBootx1), typically ...
- 1
-1
votes
1
answer
150
views
About the problem of maximizing Sharpe ratio [closed]
Regarding this problem, is this equivalent to optimize the standard mean variance portfolio and then comparing the Sharpe ratio of all the portfolio along the efficient frontier?
Edit: Instead of ...
- 1
0
votes
1
answer
286
views
Portfolio Optimization with ETFs and Futures
I am looking to perform portfolio optimization with a single ETF (or two) and a VIX futures (with the possibility of adding an additional hedging instrument). Here are some features of my portfolio ...
- 2,231
0
votes
0
answers
92
views
Deriving probability of hitting stop loss given annual return and Sharpe
Suppose I have a strategy with a mean return and defined Sharpe. Given a preset stop loss, I want to calculate the probability of the stop being hit.
In the example below I use the following ...
- 141
0
votes
0
answers
305
views
Constraints in a Mean-Variance Optimization Case
Might be a repeat question, feel free to close if it is.
I am trying to perform a mean-variance optimization (maximizing the Sharpe ratio) for lets say 5 assets. Besides the weights of the assets ...
- 2,231
0
votes
0
answers
68
views
Adjusting the p-value of a strategy for number of parameters
Let's say I have some metric and I'm trying to evaluate whether it's predictive with respect to returns. I plan to only take trades where the value of the metric is above a certain threshold, such ...
- 253
1
vote
1
answer
160
views
Calculating Ex Post Sharp Ratio's for decile portfolios
Dear Stack community,
I hereby would like to ask what the correct calculation is for calculating Ex Post Sharp Ratio's. If I am correct, I already know that I am supposed to divide the average excess ...
- 165
0
votes
0
answers
82
views
Determine expected geometric return from Sharpe ratio
I'm trying to calculate the expected annual geometric return, given that I'm provided with an annual Sharpe ratio (0.5), the yield on a 3-month T-Bill (5%) (using this yield as a proxy for the risk-...
- 128
5
votes
2
answers
798
views
Question about adding new investment A to portfolio B
I've found a ton of sources that mention the classic rule of
"If the Sharpe ratio of the new asset is greater than the Sharpe ratio of the existing portfolio times the correlation of the existing ...
- 51
1
vote
1
answer
913
views
How does one show that the Sharpe Ratio is closely related to the t-statistic of the mean differential return?
I see it being mentioned in many places, such as here, and even here.
How should I interpret it?
Suppose I have an array of signals, I, and returns of those signals, R
Then my regression is
R = a + BI
...
- 113
0
votes
0
answers
81
views
Supervised metric including beta?
I am working in a supervised ML framework. I'd like to define one metric to evaluate a strategy. Naturally I was initially enclined towards overall returns or sharpe ratio. I'd like to implement a ...
- 917
2
votes
0
answers
131
views
Squared Sharpe Ratio - Fama and French
I am investigating various versions of nested and nonnested Fama and French factor models. Performance of the models is compared on the basis of Squared Sharpe Ratios. Bariallas et al. (2020, JFQA) ...
- 21
1
vote
1
answer
395
views
Figuring out how TradingView calculates the Sharpe ratio [closed]
This is the simplest backtest I've come up with, yet I can't figure out how TradingView has calculated the Sharpe ratio to be 0.577. I've set the risk_free_rate=0. Is it possible to extract the ...
- 141
2
votes
1
answer
730
views
Mixing Max Drawdown and Sharpe Ratio in a single utility function : is there a standard approach?
We know that 2 strategies can give the same Sharpe Ratio, but with different Maximum Drawdown. I computed myself these 2 strategies having the same cumulative return and SR, but with considerably ...
- 210
1
vote
1
answer
541
views
Why isn't the Sharpe Ratio computed on the cumulative return rather than return mean? [closed]
I have learnt that the Sharpe ratio is a measure of the annualized return rate mean over the annualised standard deviation of return rate distribution.
I also learnt that when compounding, the mean of ...
- 210
0
votes
0
answers
83
views
alternatives of sharpe's ratio with respect to maximum-drawdown(mdd)
Given a window, expected return divided by standard deviation is sharpe's ratio.
But I want to form another figure for mdd-adjusted return.
mdd divided by expected return can be suggested but it seems ...
- 1
1
vote
0
answers
537
views
Derivation Treynor-Black model
In the treynor-black model the assumption is that markets are not fully optimal and it is possible to achieve additional alpha on top of the market portfolio. After a mean-variance optimization ...
- 1,578
3
votes
1
answer
535
views
How to Maximize Portfolio Sharpe Ratio using Lagrange Multipliers in a Factor Model
I've come across the notes of the 2003 lecture "Advanced Lecture on Mathematical Science and Information Science I: Optimization in Finance" by Reha H. Tutuncu.
It describes on page 62 in ...
0
votes
1
answer
227
views
Finding latest market price of market portfolio according to No Arbitrage
In Excel, I have the monthly stock price data for the past few years for Asset A and Asset B. I have calculated the monthly returns, mean returns, variances, and standard deviations for both stocks as ...
- 1
4
votes
1
answer
790
views
If returns are correlated, are Sharpe ratios correlated?
Suppose we have two correlated return series:
$$a \sim N(\mu_a,\sigma_a^2)$$
$$b \sim N(\mu_b,\sigma_b^2)$$
$$correl(a,b)=\rho$$
The sample Sharpe ratios of the two series, after $t$ samples for $t \...
- 460
8
votes
1
answer
283
views
Propagation of Errors of Sharpe Ratio
Looking at Opdyke, J.D., Comparing Sharpe Ratios: So Where are the P-Values?, page 22 (Appendix A) an application is given for the Propagation of Errors formula on a ratio of two random variables:
$$\...
- 1,986
1
vote
1
answer
1k
views
How to derive the sharpe ratio for an intraday strategy
I have an intraday strategy, which will place 0-5 trades for each intraday trading session. (Note that some days it will not place any trades out). The average duration of a trade is around 33 minutes....
- 153
1
vote
1
answer
1k
views
What can we say about the probability a strategy losing money in a year if it has an annualized Sharpe of say 2?
If we imposed the restriction that the strategy is not skewed, then using Chebyshev's Inequality I can show that the probability of it losing money in a year is less than 12.5%.
Let $X$ be the yearly ...
- 111
0
votes
0
answers
504
views
How to annualize sharpe ratio using quarterly data?
Say I have quarterly returns data for a stock. I am currently calculating rolling Sharpe ratios using an eight-quarter forward window. So for example, say I have quarterly returns data starting in ...
- 101
0
votes
1
answer
86
views
Relationship between Sharpe Ratio and Investment Horizon in a theoretical IID return world
In his paper, "The Statistics of Sharpe Ratio", Andrew Lo writes
"hence, the ratio will increase as the square root of q, making a
longer horizon investment seem more attractive. This ...
- 1
1
vote
1
answer
123
views
Difference between Treynor ratio and market premium
The definition of Treynor ratio is given by
$$
T = \frac{r_i-r_f}{\beta_i},
$$
where $r_i$ is the portfolio $i$'s return, $r_f$ is the risk-free rate and $\beta_i$ is the portfolio $i$'s beta. I am ...
- 135
1
vote
0
answers
84
views
I am comparing two assets Rolling 10 Year Sharpe Ratios. I want to know what percentage increase in Sharpe Ratio is meaningful?
If Asset A is having 35% higher Sharpe Ratio than Asset B is that significant? Or should I consider that only if Asset A is having 50% higher Sharpe Ratio than Asset B.
- 91
3
votes
1
answer
492
views
how to calculate the Sharpe ratio based on a list of trades, with space between them?
First, there are a few things I'm not clear about, like what the 'risk free' return is.. is there even such a thing in trading? or how to handle inactive days, etc.
Let's assume I have a period of 30 ...
- 151