Fewer than 5% of top-tier bank traders have Sharpe ratios > 3

[maler]

Is Sharpe Ratio concerned with evaluating the performance of a given portfolio, or does it include the behavior of the manager??

I once ran a mutual fund market timing service. (Big fish in a little pond... $60MM AUM.) Seemed to me that the notion of Sharpe didn't apply to my style. (??)

Back in the late '90s, I had my hottest streak. 5 years of averaging 75% compounded return... zero losing quarters... largest drawdown, daily-close-to-daily-close = -1.4%. (I know, how can that be? Sounds incredible. Well, it be.) What kind of Sharp Ratio would that be, or does it even apply??

People have asked me, "What's your Sharpe Ratio"? (Like, they would like to know my Sharpe before considering my worth to have me manage their money.) I've always said, "I have no idea." Wouldn't even know how to calculate it.

From the info you gave it is not possible to figure out the sharpe.
However, one can guess a lower bound for your sortino which is a better metric anyway.
Your daily vol is < 1% (-1.4%, 0%, -1.4%, 0% ... gives max daily vol),
daily return is 75%/252 = 0.29% and daily sortino is > 0.29%/1% = 0.29.
This ratio scales with the square root of time so a lower bound for your sortino is
0.29 * sqrt(252) ~ 4.7 which is very, very good.

 

[MarkBrown]

to have a great sharpe means under-utilization of funds. parking money and doing nothing much with it. low risk low reward crap like banks like, it's for people who don't need money in the first place. i would look at profit factor, longest period to new equity highs, average trade, percent winners, max drawdown.

 

[Abundance Magnet]

From what I read, they were playing a strategy which included 100:1 leverage? What? Are you nuts? With the vagaries of the markets, how can anyone with half-a-brain even imagine "all losses will be contained within a 1% drawdown"?

But... They were smart academics !

 

[JSOP]

Sharpe ratio can be manipulated and is not the only one that assesses a trader's quality of trading. With news headlines like these:

https://www.businessinsider.com/a-team-of-traders-at-goldman-sachs-lost-50-million-2015-8

https://www.reuters.com/article/us-goldman-forex-idUSBRE9AK01C20131122

I am not reading too much into their "sharpe ratio" LOL

 

[Snuskpelle]

While Sharpe ratio is optimal in a mathematical sense for maximizing the compounding growth rate, in practice looking at complementary metrics according to your trading objectives is necessary.

Another obvious foot note is that past measured Sharpe ratio isn't necessarily predictive of future Sharpe ratio.

IMO Sharpe Ratio is always the first but never the last metric you should pay attention to.

 

[GRULSTMRNN]

I would claim that anyone with 3+ SR needs to employ an algorithmic strategy with very high turnover and needs to be technologically (speak connectivity) at the top of their game or else engage in insider trading (which is illegal) Would love to hear of a single fund that generated 3+ SR on average over a span of more than 5 years and which does not fall into the categories mentioned above.

by way of efc, fewer than 5% of top-tier bank traders have Sharpe ratios above 3:
https://news.efinancialcareers.com/jp-en/312321/get-trading-job-bluecrest-capital-management-now

specifically,
"Some traders cast aspersions on BlueCrest's alleged new choosiness. "A sharpe ratio of two is good, but not incredible," says one. "Admittedly most guys in a bank are on 0-1.5, but the real outliers are on 3+." Fewer than 5% of top traders at banks like Goldman Sachs and J.P. Morgan are thought to hit sharpe ratios of three and above, he added."

on job ads for stat arb guys, the sharpe requirement is usually around 2, eg:
https://www.efinancialcareers.nl/jo...folio_Manager.id04361262?page=8&backLpId=s015

a few points/ questions:
- supposedly the market's Sharpe is around 0.5 (https://www.capitalspectator.com/are-recent-sp-500-returns-excessive-part-iii/)
- warren buffett's Sharpe has been estimated at 0.76 (http://docs.lhpedersen.com/BuffettsAlpha.pdf)

- when the traders maintain Sharpe >2 or 3 over an extended period of time, are they mostly running quant strategies? you hear of hfts with sharpe >3, wondering if the other strategies with similar risk-adjusted returns are low-frequency quant strategies, and to what extent discretionary strategies can achieve a high Sharpe (supposedly Michael Platt of Bluecrest never had a drawdown above 3%, go figure)

- what would be the unlevered annual return profiles of guys with Sharpe of 2-3? are we talking about 8-10% on an unlevered basis, if that, because there's no shortage of reports of how hedge funds are making quite subpar returns for a lot of investors, despite bank traders always making the move to hedge funds

- when the bank traders generate profits while keeping their Sharpe high, is their edge coming from sources other than superior analysis? bc why do you hear of bank traders losing on their personal accts, or having subpar returns after making the move to the buyside? what is it exactly that helps them generate the high risk-adjusted returns when they trade for the banks, if not superior analysis?

- for bank traders who are seen as top of their class, are they making $$$ with high Sharpes by virtue of their positions on the bank's trading desk, which gives them private insight on order flow from their clients ahead of time, and the stop levels, etc, instead of pure analysis per se of widely available info? what else? if just the former, surely they wouldn't be seen as all that 'valuable' for hedge funds, because who would pay top dollar to hire someone who by definition would lose their previous edge when they come to you?

 

[GRULSTMRNN]

If you have no idea what your risk adjusted returns were and you also don't know how to calculate such then I think it is safe to assume that you are completely talking out of your ass.

People, please do not be so gullible and be deceived by someone who slings around with big numbers but displays an utter lack of even 101 basic concepts. Nobody in their right mind would hire such person let alone fund such person.

Is Sharpe Ratio concerned with evaluating the performance of a given portfolio, or does it include the behavior of the manager??

I once ran a mutual fund market timing service. (Big fish in a little pond... $60MM AUM.) Seemed to me that the notion of Sharpe didn't apply to my style. (??)

Back in the late '90s, I had my hottest streak. 5 years of averaging 75% compounded return... zero losing quarters... largest drawdown, daily-close-to-daily-close = -1.4%. (I know, how can that be? Sounds incredible. Well, it be.) What kind of Sharp Ratio would that be, or does it even apply??

People have asked me, "What's your Sharpe Ratio"? (Like, they would like to know my Sharpe before considering my worth to have me manage their money.) I've always said, "I have no idea." Wouldn't even know how to calculate it.

 

[GRULSTMRNN]

Incorrect. Check out how SR is computed and you will understand that it penalizes for low absolute returns. Also, like all risk adjusted return measures, SR takes into account capital at risk only not funds that are not invested. I recommend reading up on the concept. It's basic knowledge that is required of anyone managing risk in financial markets in an employed capacity. Why would the same not apply for those trading independently.

to have a great sharpe means under-utilization of funds. parking money and doing nothing much with it. low risk low reward crap like banks like, it's for people who don't need money in the first place. i would look at profit factor, longest period to new equity highs, average trade, percent winners, max drawdown.

 

[MarkBrown]

It's basic knowledge that is required of anyone managing risk in financial markets in an employed capacity. Why would the same not apply for those trading independently.

basic knowledge to the new academia traders but walmart, jimmy dean, mary kay, hunts and others never once requested any such figures as i recall. they were more interested in the very stats i quoted earlier.

did you even read what i said was most important or just regurgitating what mta training shoved down your throat? now that i trade privately i still laugh when i read the sickening poor performance of today's money manager.

people use to want returns now they are just happy if the new pups don't lose it all. thus the need for all these new monitoring stats to keep tabs on the superfluous.

 

[GRULSTMRNN]

If you resort risk adjusted return measures to the superfluous then you seem to miss the absolute basics of risk taking, aka trading, and the management of risk. It would take you 5 minutes to open a wiki page and read up on the basics of Sharpe ratio. It is nothing magical, simply a risk adjusted return measure.

So, yes I did read your post and paste it again below and the content is pretty nonsense because it simply shows you do not understand what a risk adjusted return measure is. A trader who takes risk but does not know how to measure that risk/volatility and does not understand that returns with large variations are inferior to stable returns with lesser variations (all else equal) misses the entire boat. Instead of shooting back why not just acknowledging the error, reading up on what's missing in your arsenal and gaining knowledge to improve your trading approach?

Here is what you wrote regarding Sharpe Ratio:

"to have a great sharpe means under-utilization of funds. parking money and doing nothing much with it. low risk low reward crap like banks like, it's for people who don't need money in the first place. i would look at profit factor, longest period to new equityhighs, average trade, percent winners, max drawdown."

basic knowledge to the new academia traders but walmart, jimmy dean, mary kay, hunts and others never once requested any such figures as i recall. they were more interested in the very stats i quoted earlier.

did you even read what i said was most important or just regurgitating what mta training shoved down your throat? now that i trade privately i still laugh when i read the sickening poor performance of today's money manager.

people use to want returns now they are just happy if the new pups don't lose it all. thus the need for all these new monitoring stats to keep tabs on the superfluous.