Sharpe Ratio Calculation

Discussion in 'Index Futures' started by orangelam, Jun 1, 2019.

  1. trading schedule is daily without carrying over night. Within the year, some more capital is injected to the account for doing larger position. My question is if we calculate the daily return by the difference of account value, it would be mis leading because of the capital injection

    would it be practical to use the intraday margin requirement when calculating the daily return? Say, the PnL is 500, the intraday margin is 20000, so the return is 1/40. To sum up, just use the capital required for the position.

    i don't know whether i m correct or not but seems making sense.

    Also, what is the standard daily risk free rate assumption ?
  2. Don't know about the rest of it but generally people assume it to be zero
  3. tommcginnis


    What you are arguing is reality -- don't try to shave it too close.
    If you were over-committing $10,000 of capital or moderately committing $100,000, the ratio remains delivered returns over variability of returns.
    As long as the pool of funds from which you measure *returns* remains consistent, you're okay. If you need two columns to do that, take two columns.

    If you get *enough* columns, you can work this in:
    Your trading platform likely has this on a performance page for you.
    nooby_mcnoob likes this.

  4. I like this explanation

  5. the method provided in your link is (ending-start-net deposit)/start

    however, it doesn't make sense to me. say if capital injected is 9 times than before in order to make 9 times more profit. assume original return is 10%, then according to above formula, return will be 100% because the denominator is still the starting account balance.

    however, if just use the margin requirement, the return unchanged as margin requirement also 9 times more.
  6. tommcginnis


    There are other presentations on the net that might read better for you, but The Fools got this completely correct. Give that article another shot.