Sharpe ratio >3 ? Seriously ?

zilliq · 2020-06-05T08:41:11+00:00

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 9:41 AM #134659 quote

zilliq
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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

Legend

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

Legend

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

Legend

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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