How does the backtester calculate Sharpe Ratio ?

Quantopian's community platform is shutting down. Please read this post for more information and download your code.

Back to Community

How does the backtester calculate Sharpe Ratio ?

posted Jul 2, 2015

How becktester calculate Sharpe Ratio ?
Like this

Annualized Excessive Risk Free Return /Annualized StDev( Excessive Risk Free Return)

or different way?

2 responses

Simon Thornington

https://github.com/quantopian/zipline/blob/847b5bdc4294cd3323be529977352d6c6434943b/zipline/finance/risk/risk.py#L92

I think that's the relevant source.

What I got from there:

def sharpe_ratio(algorithm_volatility, algorithm_return, treasury_return):  
    """  
    http://en.wikipedia.org/wiki/Sharpe_ratio  
    Args:  
        algorithm_volatility (float): Algorithm volatility.  
        algorithm_return (float): Algorithm return percentage.  
        treasury_return (float): Treasury return percentage.  
    Returns:  
        float. The Sharpe ratio.  
    """  
    if zp_math.tolerant_equals(algorithm_volatility, 0):  
        return np.nan

    return (algorithm_return - treasury_return) / algorithm_volatility

In numerator actually we have Excessive over US.Treasury Return not Excessive over Risk Free Return.
In Denominator I suppose that algorithm_volatility is just StDev(Return)
not StDev (Excessive over Risk Free Return)
Nether numerator Nether Denominator calculated correctly.
This is not Sharpe Ratio.

You've successfully submitted a support ticket.

Our support team will be in touch soon.

Need help? Contact support.

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.

About Quantopian

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.