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Sharpe ratio 0.004

Sharpe ratio 0.004

lurkalurka84

I think you may be calculating sharpe incorrectly. What formula are you using? .004 implies huge standard dev of returns given your mean return. Edit: Cool. .72 sounds like a reasonable result. You may also want to investigate sortino ratio which doesn’t penalize for large wins. Basically set all positive returns to zero in Std dev calculation only. See more info here. https://www.cmegroup.com/education/files/rr-sortino-a-sharper-ratio.pdf


ravepeacefully

He said one year is +80, and another -.5 Wouldn’t that be a very large st dev lol If I use just his 2 years as a sample, 2% risk free, I get .2-.3 depending on risk free, so maybe you’re right


lurkalurka84

.17 (17%) average return .004=.17/x X=42.5 4250% seems like an error in sd calculation


lquant

His numbers imply an annual std dev of 4250%. So rather than a range of +80 -0.5, we'd expect more like +10000 -99 if his calculation is correct. My kahunas aren't big enough to invest in that.


TheSemenThatLived

I agree, OP: otherwise post an equity curve? Visually you can inspect the quality of the algorithm just fine too.


Bittertwitter

Hi. Theres no way a 20% annual return for 27 years produce a sharpe of 0.004. My guess is you are not annualising the sharpe. U are probably using daily sharpe Another reason is your strategy is extremely -ve /+ve skewed. That would explain the humongous stdev. Tsk tsk. U got any daily/monthly return chart or table to show us?


optionexpert

i am calculating per year, but perhaps i fail in the std deviation calculus


btrudgill

Whats your drawdown? Thats probably the biggest issue, along with win/loss ratio. I have a pie in trading 212 which is just a automatic proportional investment, 50% in a couple of funds and the rest in tech stocks. Thats averaged out to 21.5% gain over 5 years and that doesnt enter and exit trades, just buys stocks when I fund it. So your 20% average gain algo isn't all that great if im honest.


Jabroni1616

20% over the last 5 years vs. 20% over the last 27 is pretty different. I’d consider 20% avg. return since 1994 pretty darn good


btrudgill

Of course it is, hut trading212 doesnt tell me what it is over that length of time. 20% average return is good, but id expect an algorithm to be able to do better than that.


everdreamz

Can financial institutions be interested in an algo with a high (>1.5) sharpe but that underperforms the S&P?


ProfessionalCar7

Sure, if you can lever it up


tradegreek

ofc risk adjusted returns is clearly greater than flat out returns the OP stratergy must be quite close to gambling in terms of the sharpe ratio


tradegreek

also bare in mind that most hedge funds underperform the s&P in any given year in terms of returns but thats the point they are hedged. Over time the beleif is they will outperform over a business cycle


options_raider

Where do you get your stock data from?