I thought the same thing before beginning my analysis. What the results indicated to me, however, was that due to what I believe is the difference in the magnitude of compounding upon the timing of the cashflows, drawdown and return did not increase/decrease equally. For example, at current leverage (no leverage to speak of) the max drawdown is 3.870% and the average monthly return is .327%. If these amounts are doubled, they would be a drawdown of 7.739% and a return of .655%. However, when I double the daily gains and losses as they occur and make the calculations based on these values, I get a drawdown of 7.796% but the return increases to .742%. The delta in the dwawdowns is less, in comparison to the delta between returns, proving favorable (.0009 for return, .0006 for drawdown). Small, but still favorable.
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Sharpe Ratio questions
- Thread starter HFStartup
- Start date
I thought the same thing before beginning my analysis. What the results indicated to me, however, was that due to what I believe is the difference in the magnitude of compounding upon the timing of the cashflows, drawdown and return did not increase/decrease equally. For example, at current leverage (no leverage to speak of) the max drawdown is 3.870% and the average monthly return is .327%. If these amounts are doubled, they would be a drawdown of 7.739% and a return of .655%. However, when I double the daily gains and losses as they occur and make the calculations based on these values, I get a drawdown of 7.796% but the return increases to .742%. The delta in the dwawdowns is less, in comparison to the delta between returns, proving favorable (.0009 for return, .0006 for drawdown). Small, but still favorable.
Oh okay. Good to know - in institutional FI/Equity space, GIPS compliance is a pretty big deal since investors are less sophisticated than you might imagine, so everyone wants GIPS compliance these days.
Quote from heech:
They aren't. I'm trading a futures only fund, and NFA has its own rules on performance presentation/calculation. That doesn't extend as far as rf and Sharpe... but I don't think anyone cares.
I suspect most institutional investors are really running their own numbers on the basis of my monthly (or even daily) numbers, anyways. They aren't looking just at Sharpe, but the distribution.
First, see my reply to the other fella - I know quite a bit of being GIPS compliant.
Second, I think this is all kind of funny because I didn't expect GIPS compliance rules to be brought into a conversation on ET.
Anyway, I don't really mean that you are a douche, but a douche (in the nice, funny way) for bringing real world stuff into an ET discussion.
Second, I think this is all kind of funny because I didn't expect GIPS compliance rules to be brought into a conversation on ET.
Anyway, I don't really mean that you are a douche, but a douche (in the nice, funny way) for bringing real world stuff into an ET discussion.
Quote from dtan1e:
hey man, don't get all twisted in knots, sure its simple but not when u try to implement, if u don't use a GIPS compliant definition how is your investor going to compare your performance if your definition is risk free is whatever u consider it is, talking about simple minded
Indeed... Most strategies would define a "hurdle rate" (most of the time it's USD LIBOR), but in reality even that's a totally arbitrary choice. Even in theory there's no such thing as a risk-free rate, really. There's a funding rate, which might be different for each individual investor, but people for simplicity assume that everyone funds at a single universal rate (these days it's FedFunds, in my experience).Quote from heech:
There is no formal "definition" of Sharpe or risk free rate. It is whatever the investor evaluating the risky investment wants it to be.
Indeed! This conversation is making me wonder whether I should hire a third party GIPS service provider to look at my numbers for me. I'm far too lazy to calculate another set of formal numbers.Quote from DontMissTheBus:
First, see my reply to the other fella - I know quite a bit of being GIPS compliant.
Second, I think this is all kind of funny because I didn't expect GIPS compliance rules to be brought into a conversation on ET.
It shouldn't be difficult. I really just have one set of master fund accounts since launch, and one set of prop trading accounts shortly before then.
It's not even the calculations themselves that are annoying - GIPS compliance is not necessarily too chatty about that - but the disclosure rules are pretty intricate.
Disclaimer: I'm not a certified GIPSs drone - I just know a few things about it since I've been told enough times by such drones that no, I can't put that in the books because it's not GIPS compliant.
Disclaimer: I'm not a certified GIPSs drone - I just know a few things about it since I've been told enough times by such drones that no, I can't put that in the books because it's not GIPS compliant.
Quote from heech:
Indeed! This conversation is making me wonder whether I should hire a third party GIPS service provider to look at my numbers for me. I'm far too lazy to calculate another set of formal numbers.
It shouldn't be difficult. I really just have one set of master fund accounts since launch, and one set of prop trading accounts shortly before then.