All of our risk metrics are calculated in Zipline, our open-sourced backtester. The Sharpe calculation is available here: https://github.com/quantopian/zipline/blob/master/zipline/finance/risk/period.py#L219

Zipline calculates Sharpe by subtracting the risk-free rate from the average annual return (in the numerator). So the Sharpe will go negative if the annual return is less than the risk-free rate.

@Alisa

What symbol Quantopian use as approximation to calculate risk-free rate?
It is near zero now.

Hi Vladimir, I believe David answered your question was answered here: https://www.quantopian.com/posts/what-quantopian-use-as-approximation-of-risk-free-return-to-calculate-sharpe-ratio

@Alisa

I got the answer were from Q get the data.
The risk free rate used is gotten from the US treasuries data

But not specifically which one?
1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr

@Alisa
If you do not know exactly which one from
1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
just give me the number and I will find out which Treasury from yield curve.
http://www.investing.com/rates-bonds/usa-government-bonds?maturity_from=10&maturity_to=290
In other words: what is risk-free rate in Quantopian today?

David posted the code here:

https://www.quantopian.com/posts/what-quantopian-use-as-approximation-of-risk-free-return-to-calculate-sharpe-ratio

I will not wait the answer.
To calculate what Quantopian use as approximation to risk free interest rate
I will use data from Jeffery contest metric,who initiated this investigation.
https://www.quantopian.com/leaderboard/5552d8b7c4b238fb42000579?month=6&year=2015
but the results are the same on any context data.

As of now it is
Annual Returns 5.158%
Annual Volatility 2.111%
Sharpe 1.297
If
Sharpe Ratio = (Annual Returns-Risk Free Return)/Annual Volatility
then
Risk Free Return = Annual Returns - Sharpe Ratio*Annual Volatility
Risk Free Return = 5.158-1.297*0.8752 = 2.4200
Witch corresponding to 10 year US Treasury Yield
By Zipline's risk module code

def select_treasury_duration(start_date, end_date):  
    td = end_date - start_date  
    if td.days <= 31:  
        treasury_duration = '1month'  

It should choose 1 month US T-Bill Yield= -0.010
http://www.investing.com/rates-bonds/usa-government-bonds?maturity_from=10&maturity_to=290
Conclusion:
1.Zipline's risk module choosing wrong US Treasury (not as written in the code) -Please Fix the bug.
2.US Treasury Yields higher than 3 month TBill may not be accepted as approximation to risk free interest rate.
Please remove them from Zipline's risk module code

@Jeffery
If they fix the bug yours sharpe will go up to 2.4481 -congratulation!

Hello
I have a question - do we always need to deduct risk free rate or only when financing costs are involved do we need to follow the formula?

regards,
Joydeep