Sharpe Ratio - Monthly or Annual??

Discussion in 'Automated Trading' started by A2ONE, May 22, 2012.

  1. 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?
  2. jelite


    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.

  3. 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.
  4. gmst


    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.
  5. A2ONE


    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.

  6. Sharpe is an annual number. It is not the only measure of track record.

    >1.3 is excellent. >2 is legendary.