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Sharpe Ratio
- Thread starter tula
- Start date
Sharpe Ratio of Trades
The Sharpe Ratio is a way to measure the risk-adjusted return of an investment. Its ratio measures how much of an investment's return can be attributed to chance. A Sharpe Ratio value of above 1.0 is considered good, while a value above 2.0 is typically considered outstanding.
The Sharpe Ratio of trades is calculated by obtaining the average percentage return of the trades generated by the system, as well as the standard deviation of returns. The average return and average standard deviation are annualized by using the average number of days held per trade as a baseline. The final result is found by dividing the annualized average return by the annualized standard deviation of returns.
The Sharpe Ratio is a way to measure the risk-adjusted return of an investment. Its ratio measures how much of an investment's return can be attributed to chance. A Sharpe Ratio value of above 1.0 is considered good, while a value above 2.0 is typically considered outstanding.
The Sharpe Ratio of trades is calculated by obtaining the average percentage return of the trades generated by the system, as well as the standard deviation of returns. The average return and average standard deviation are annualized by using the average number of days held per trade as a baseline. The final result is found by dividing the annualized average return by the annualized standard deviation of returns.
Quote from swoop[TR]:
Hmmmm, If I were you I would start with the equation of the sharpe ratio, and as you know, the equation contains a component of volatility also known as standard deviation. So I would say your file does not contain enough info to calculate a meaningful SR.
So to answer my question with the number i stated i don't have enough info to calculate the Sharpe Ratio.
Thanks,
Tula
Here is a spreadsheet I use with all the calculations for the sharpe ratio. You need 12 months of data to get started. Just plug in your own numbers. These are the numbers from my hypothetical fund at marketocracy. Just plug in your own numbers.
a web site to get risk free return rates is
http://able.harvard.edu/rates/ca004q/index.shtml
a web site to get risk free return rates is
http://able.harvard.edu/rates/ca004q/index.shtml
Attachments
You do have enough data to calculate a Sharpe Ratio (all you need is two values). Using more data improves its significance. You should be sure to only use comparable data, though. It appears that you may have experienced some style shift or a change in leverage used after the first two years or so. If that is the case, you should exclude those years from your calculations.
Sharpe Ratio is defined as follows:
SharpeRatio=(Average Period Return - Periodic Riskless Rate of Return)/(Standard Deviation of Period Returns)
You can use any period you wish, daily, weekly, monthly, yearly, etc. Because there is no standard value used for the Riskless Rate of Return (and most large futures accounts deposit bonds instead of cash), most people simply set it equal to zero. Note that the Sharpe Ratio with a zero riskless return is called the Information Ratio.
You should also be aware that the Sharpe Ratio has many weaknesses. For example, it misrepresents the risk associated with certain investment styles and can be manipulated by using derivatives.
jj
Sharpe Ratio is defined as follows:
SharpeRatio=(Average Period Return - Periodic Riskless Rate of Return)/(Standard Deviation of Period Returns)
You can use any period you wish, daily, weekly, monthly, yearly, etc. Because there is no standard value used for the Riskless Rate of Return (and most large futures accounts deposit bonds instead of cash), most people simply set it equal to zero. Note that the Sharpe Ratio with a zero riskless return is called the Information Ratio.
You should also be aware that the Sharpe Ratio has many weaknesses. For example, it misrepresents the risk associated with certain investment styles and can be manipulated by using derivatives.
jj
http://www.seykota.com/tribe/risk/index.htm
Ed Seykota has a page about risk management and
towards teh end of the page has some information about
the Sharpe ratio
Ed Seykota has a page about risk management and
towards teh end of the page has some information about
the Sharpe ratio