Sharpe Ratio Benchmark?

Discussion in 'Automated Trading' started by hilojack, Feb 27, 2011.

  1. I have a system that auto trades forex and breaks up the trades by currency pair. The system runs 3 different ways on each pair with varying degrees of results.

    I want to be able to run metrics on each individual pair traded and then on the portfolio in general.

    My question is: what should I use as a benchmark to compare results against? T-bills? Money-markets?

    Does anyone have any experience with generating reports for forex systems?


  2. sharpe ratio is by definition:

    But you're question is dependent on the time horizon of your trades. I would just take the average holding period time for the systems and tie that as your risk free rate - so if you borrow margin at .25%, use that. If you hold for months, use a longer term rate... But you're actual margin interest rate is likely higher than the current rates, so use that as a risk free rate.

    You'll quickly figure out that the Sharpe Ratio is highly misleadings during times like this when rates are so low. If you took a 5 year window for risk free rates, you're ratio would get cut significantly....