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 Forums ›› Technically Speaking ›› Automated Trading ›› Sharpe Ratio - Monthly or Annual??

 A2ONE   Registered: May 2012 Posts: 6 05-22-12 11:05 PM How should I evaluate my Sharpe ratio - using annual or monthly returns? I use NinjaTrader (which calculates based on monthly data), and I have incredibly low Sharpe ratios. I don't know if I should refine a strategy b/c this ratio is not very strong, and I know it is vital. For instance, my main strategy has a (non-optimized) backtested Sharpe ratio of 0.55 in NinjaTrader, but these other statistics: 267% cumulative profit in 2.5 years, 30% max drawdown, 0.60% per trade. Or for another strategy, over 12 months: 301% cumulative return, 8% max drawdown, 1.8% per trade, but only a 1.20 Sharpe ratio. Should I only be concerned about the annual Sharpe ratios, which would be roughly 1.9 and 4.2, respectively? Edit/Delete • Quote • Complain
 jelite   Registered: Nov 2009 Posts: 35 05-23-12 02:24 PM Annualized Sharpe >= 2 is very respectable in my opinion. I would focus more on return/drawdown ratio, which in your case (IF it's valid...) is high because that tells you how much you can make given a certain risk threshold. Edit/Delete • Quote • Complain
 Stoxtrader   Registered: Jul 2006 Posts: 228 05-23-12 04:30 PM Quote from A2ONE: How should I evaluate my Sharpe ratio - using annual or monthly returns? I use NinjaTrader (which calculates based on monthly data), and I have incredibly low Sharpe ratios. I don't know if I should refine a strategy b/c this ratio is not very strong, and I know it is vital. For instance, my main strategy has a (non-optimized) backtested Sharpe ratio of 0.55 in NinjaTrader, but these other statistics: 267% cumulative profit in 2.5 years, 30% max drawdown, 0.60% per trade. Or for another strategy, over 12 months: 301% cumulative return, 8% max drawdown, 1.8% per trade, but only a 1.20 Sharpe ratio. Should I only be concerned about the annual Sharpe ratios, which would be roughly 1.9 and 4.2, respectively? A rule of thumb is to have a sample size of at least 30, in order for the backtest to be somewhat predictive of future results. So monthly returns for 2.5 years (30 months) suffices, whereas monthly returns for 1 year (12 months) does not. If both strategies were for 2.5 years or more, they could be compared more easily. Edit/Delete • Quote • Complain
 gmst   Registered: Jul 2011 Posts: 3696 05-27-12 06:36 AM Quote from A2ONE: How should I evaluate my Sharpe ratio - using annual or monthly returns? I use NinjaTrader (which calculates based on monthly data), and I have incredibly low Sharpe ratios. I don't know if I should refine a strategy b/c this ratio is not very strong, and I know it is vital. For instance, my main strategy has a (non-optimized) backtested Sharpe ratio of 0.55 in NinjaTrader, but these other statistics: 267% cumulative profit in 2.5 years, 30% max drawdown, 0.60% per trade. Or for another strategy, over 12 months: 301% cumulative return, 8% max drawdown, 1.8% per trade, but only a 1.20 Sharpe ratio. Should I only be concerned about the annual Sharpe ratios, which would be roughly 1.9 and 4.2, respectively? Ninja and tradestation have screwed up here. Sharpe ratios are always quoted in annualized terms. so 1.9 and 4.2 are what you quote - which are excellent numbers btw. Good luck. Edit/Delete • Quote • Complain
 A2ONE   Registered: May 2012 Posts: 6 05-28-12 02:47 PM Ok, that is what I was hoping to hear. Thanks for the replies. Note, these are only backtested results, so I'm not going head over heals until the results are real. One- Edit/Delete • Quote • Complain
 tenthousandmen   Registered: Dec 2011 Posts: 728 05-28-12 06:36 PM Sharpe is an annual number. It is not the only measure of track record. >1.3 is excellent. >2 is legendary. Edit/Delete • Quote • Complain