Sharpe ratio >3 ? Seriously ?

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  • 06/05/2020 at 9:41 AM #134659 quote
    zilliq
    Participant
    Master

    Hi Guys,

    I play with the new backtest results, but it’s strange, because on Backtest we can have Sharpe Ratio of more than 2 (Here 4.64 ! on 100 000 unit EUR/USD 1 mn, only on 40 trades and so on..)

    Remember that the best trading algo have a Sharpe ratio of 3, so I think a Sharpe ratio of more than 4 is impossible (I’m not stupid and I know we haven’t fin the graal, or the @Grahal 🙂 )

    What’s your Point of view ?

    Cheers

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    06/05/2020 at 9:48 AM #134662 quote
    Nicolas
    Keymaster
    Master

    Low quantity of orders means not much data to average a significant ratio. With a high profitability strategy divided by a low standard deviation of gain, you obviously get a high Sharpe Ratio.

    06/05/2020 at 10:29 AM #134674 quote
    zilliq
    Participant
    Master

    Sharpe ratio is on mean gain Nicolas, not total gain

    “…The Sharpe ratio reveals the average investment return, minus the risk-free rate of return, divided by the standard deviation of returns for the investment…”

    But agree with you on a small trades who makes interpretation difficult (That’s why there is a correction factor on SQN/Van Tharp notably ;,-) )

    Cheers

    06/05/2020 at 1:53 PM #134720 quote
    zilliq
    Participant
    Master

    As you can see, with quite the same number of trade, we can have very good sharpe ratio even with a small gain (+34 % only)

    Have a nice day

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    06/05/2020 at 4:22 PM #134742 quote
    Nicolas
    Keymaster
    Master

    Orders are grouped as a daily return:

    dailyReturn[day] = sum(perf)[day] / nb_trades[day]

    Then the Sharpe ratio is calculated:

    sharpe = (average(dailyReturns) – risk free interest rate between start and end of the report) / standard-deviation(dailyReturn)

    The risk free interest rate is automatically calculated by the software with a geometric interpolation.

    zilliq thanked this post
    06/05/2020 at 4:57 PM #134747 quote
    zilliq
    Participant
    Master

    We are together agree, that’s derived/based on mean gain, that’s why even with a small total gain we can have a beautiful Sharpe ratio (Interest is may be for the “ego” 🙂

    Have a nice day Nicolas

    06/11/2020 at 7:54 AM #135534 quote
    zilliq
    Participant
    Master

    FYI (very bad) results after some days even with a sharpe ratio of 4.64 ! (And remember 90 % winning trades, 6 win/loss and so on…EUR/USD 1 mn 100 000 units)

    Sharpe ratio don’t do all the job 😉

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    06/11/2020 at 10:16 AM #135555 quote
    Nicolas
    Keymaster
    Master

    Nothing new if the sharpe ratio is calculated on bias and over-fitted results 🙂

    06/11/2020 at 11:28 AM #135571 quote
    zilliq
    Participant
    Master

    It wasn’t overfit Nicolas (Only 2-3 parameters as usual), 100 000 units and so on

    It’s jut that Sharpe Ratio isn’t a standalone and need to be interpret with other indicators as we previous seen

    Have a nice day

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Sharpe ratio >3 ? Seriously ?


ProOrder: Automated Strategies & Backtesting

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zilliq @zilliq Participant
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This topic contains 8 replies,
has 2 voices, and was last updated by zilliq
5 years, 8 months ago.

Topic Details
Forum: ProOrder: Automated Strategies & Backtesting
Language: English
Started: 06/05/2020
Status: Active
Attachments: 3 files
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