Quotes by TradingView
Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.

Tuesday, 4 December 2018

Strategy testing


  • Profit factor
  • Sharpe Ratio
  • Ulcer Performance Index
  • Compound Annual Growth Rate
  • Maximum Drawdown
  • Percent Profitable Trades
  • Average Win to Average Loss Ratio
  • Equity

Sharpe ratio

Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. 

The Sharpe ratio is a ratio of return versus risk. The formula is: (Rp-Rf)/ p
where:

Rp = the expected return on the investor's portfolio
Rf = the risk-free rate of return
p = the portfolio's standard deviation, a measure of risk

Note that "sharpe ratio" is considering the volatility type of risk, ignoring that treasury notes are not really risk-free but involving other types of risks (inflation, interest rate risk, opportunity costs, etc)

Use Python to calculate the Sharpe ratio for a portfolio



Realised historical return is used to calculate ex-post Sharpe ratio while ex-ante Sharpe ratio employs expected return. 



Ulcer Index

Ulcer index is designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period.

Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement.

Flirting with Models: Looking into the Ulcer Index

Loss at a single point in time (max drawdown) is far less important than how a strategy manages losses over time (UPI).

No comments:

Post a Comment

Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.

Post─âri populare

Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.