OK. Here's the deal. I want to calculate an ANNUALIZED Sharpe Ratio from my daily P&L.
Here's how I went about it. Please let me know if you think this is correct. I read it on the internet somewhere but it still feels a bit icky(the formula & calculations). Just wanted a sounding board/confirmation if this the correct approach.
1) Daily P&L series
2) Calculate Daily Returns(Today's PL/Yesterday's PL -1) as a percentage. Note: PL is actually account balance.
3) Take Average of the Daily Returns
4) Take Std deviation of Daily Returns
5) Average Daily Returns - 25basis pts(for Fed Funds rate which is the risk-free rate for daily return series right?)
6) Divide #5 by #4
7) Take #5 multiples by the square root of 252 to annualize it.
What ya think? I found this somewhere but I feel like it's a bit icky.
Also, how can I calculate my YTD Return when I WITHDRAW from my trading account?? You can't just use the current balance % from the beginning balance. Since the balance went up then I withdraw from my trading acccount to bank some.
Thanks in advance!
99
Here's how I went about it. Please let me know if you think this is correct. I read it on the internet somewhere but it still feels a bit icky(the formula & calculations). Just wanted a sounding board/confirmation if this the correct approach.
1) Daily P&L series
2) Calculate Daily Returns(Today's PL/Yesterday's PL -1) as a percentage. Note: PL is actually account balance.
3) Take Average of the Daily Returns
4) Take Std deviation of Daily Returns
5) Average Daily Returns - 25basis pts(for Fed Funds rate which is the risk-free rate for daily return series right?)
6) Divide #5 by #4
7) Take #5 multiples by the square root of 252 to annualize it.
What ya think? I found this somewhere but I feel like it's a bit icky.
Also, how can I calculate my YTD Return when I WITHDRAW from my trading account?? You can't just use the current balance % from the beginning balance. Since the balance went up then I withdraw from my trading acccount to bank some.
Thanks in advance!
99