HELP! How to Calculate Sharpe Ratio During Backtest?

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HELP! How to Calculate Sharpe Ratio During Backtest?

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API Seeking Help Risk Management

Anyone have a clue how to calculate rolling Sharpe ratio during backtest?
I'd like to use rolling Sharpe ratio in my investment algorithm but I can't figure out how to compute or access the components I need, ie. portfolio return, standard deviation of portfolio returns and risk free rate over my chosen look back period.

2 responses

https://www.quantopian.com/posts/corrections-to-cumulative-risk-metrics

Maybe someone in the community would like to use some of this as a starting point to create an accurate Sharpe calculation?

Joakim Arvidsson (Cream Mongoose)

If one assumes that the risk-free rate is 0 (as I believe Q does in their calculation of Sharpe), then would it be completely wrong to use the built in factors, like this to calculate Sharpe?

from quantopian.pipeline.factors import AnnualizedVolatility, Returns

simple_sharpe = Returns(window_length = 126) / AnnualizedVolatility(window_length = 126)

Regarding risk-free rate = 0, would the overnight USD Libor rate (currently about 1.7% annualized I believe) be the correct one (for daily rebalancing algos), and also, should it be adjusted for inflation, in which case 0 probably wouldn't be too far off?

Hopefully someone more enlightened can answer these questions.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.