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Is the information ratio reported in Pyfolio correct?
Mark Segal
posted

Hello all,

I am comparing the results of a backtest in the Quantopian IDE to the results of a pyfolio tear sheet, and am seeing a large discrepancy in the reported information ratios. The IR in the Q IDE is 0.95, while in the backtest it is 0.02. The returns, volatility, and max drawdown are all the same, while the Sharpe ratio in the Q IDE is 1.35 as compared to 0.95 in the pyfolio tear sheet. From what I've read on the forums the tear sheet is to be trusted, however the IR seems suspect since the algorithm outperforms the benchmark almost every year over the backtest period. Am I missing something, why the large discrepancy?

Regards,
Mark

3 responses
Thomas Wiecki

Hi Mark,

It's a bit hard to ascertain why pyfolio's IR is so low if it's returns supersede the benchmark on most days. Here is the implementation: https://github.com/quantopian/pyfolio/blob/master/pyfolio/timeseries.py#L365. If you don't want to share the backtest / tearsheet, you could compare that to a manual calculation I suppose and see why the IR has this specific value.

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Mark Segal

Thanks Thomas,

I will have a look, is the calculation for information ratio different in the Q IDE? Is it based on a different timeframe monthly rather than daily returns?

Regards,
Mark

Thomas Wiecki

They're different which isn't the best state of affairs. In doubt, I'd trust the pyfolio metrics. We will have zipline use the pyfolio risk metrics for everything in the future.

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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.