R: Trouble using SharpeRatio from the PerformanceAnalytics package

Discussion in 'Programming' started by Cinji18, Aug 12, 2019.

  1. Cinji18


    I'm confused and having issues using `SharpeRatio` from the `PerformanceAnalytics` package. After all was said and done, I can't seem to get my number to match the sharpe ratio posted on Yahoo Finance.

    Here's my procedure (I'll try to keep it simple):

    > getSymbols("XLU", src = "yahoo", auto.assign = TRUE, return.class = "xts")
    > head(XLU)
    XLU.Open XLU.High XLU.Low XLU.Close XLU.Volume XLU.Adjusted
    2007-01-03 36.41 37.10 36.41 36.82 4229300 23.33392
    2007-01-04 36.86 36.94 36.67 36.77 2958400 23.30223
    2007-01-05 36.67 36.67 35.99 36.11 3784500 22.88396
    2007-01-08 35.97 36.22 35.93 36.09 2415000 22.87128
    2007-01-09 35.94 36.18 35.87 36.12 2342100 22.89030
    2007-01-10 35.99 36.20 35.95 36.13 1918100 22.89664

    > adj <- Ad(XLU)
    > head(Ad(XLU))
    2007-01-03 23.33392
    2007-01-04 23.30223
    2007-01-05 22.88396
    2007-01-08 22.87128
    2007-01-09 22.89030
    2007-01-10 22.89664

    > monthlyRTN <- monthlyReturn(Ad(XLU))
    > monthlyRTN <- monthlyRTN["2016-08/2019-08"]
    > head(monthlyRTN)
    2016-08-31 -0.055448911
    2016-09-30 0.003613012
    2016-10-31 0.008981693
    2016-11-30 -0.054218282
    2016-12-30 0.048991012
    2017-01-31 0.012559332

    > SharpeRatio(monthlyRTN)
    StdDev Sharpe (Rf=0%, p=95%): 0.2386500
    VaR Sharpe (Rf=0%, p=95%): 0.1508941
    ES Sharpe (Rf=0%, p=95%): 0.1304109

    The 0.23865 is nowhere near the 0.63 posted on Yahoo Finance under Risk Statistics under 3 years. What am I missing?

  2. You are comparing different periods.

  3. Cinji18


    Can you elaborate? Even after I use endpoints() to subset end-of-month prices before computing monthly returns, I got the same monthlyRTN, and thus, same SharpeRatio as before.
  4. fan27


    Unless you can see how Yahoo finance is calculating the Sharpe Ratio, don't waste your time trying to match their value. Are they using the risk free rate of return in the calculations? Are you (doesn't look like it)? As @GRULSTMRNN mentioned, what is your return period vs theirs?
  5. Cinji18


    I left out the risk free rate in this example because I wanted to keep it simple for the forum, but I do use it in my actual script. Right now, I'm using monthly returns. I have no idea how Yahoo calculates it. I am using Yahoo to check and confirm I am computing things correctly in my script, but it sounds like that is futile.
  6. If you have no idea how they calculate it and what assumptions they make then wanting to match numbers is a useless pursuit. Even a different risk free rate completely distorts results. You may also improperly scale monthly results to annualized figures,not saying you do, just voicing a hunch. Figure out their comoutional assumptions then we can further help, otherwise asking further will not get you answers

  7. Cinji18


    Thank you. At least that gives me some next steps.
  8. I think that the 0.63 is an annual value. So you can't compare it to the monthly value you calculate. It would be better, as a first step, to use the daily returns to calculate an annual Sharpe ratio and see whether that is more in line with your desired Yahoo target value.
    GRULSTMRNN likes this.
  9. Cinji18


    Thanks. I will check to see if that is the case.
  10. Nighthawk


    What is you risk free rate you are using? Is your base currency USD or which other currency?

    Rhetoric question: what RFR would you use for EUR or JPY as base?

    And why in the world is Yahoo Finance reporting so, so important to you?
    #10     Aug 13, 2019