What is your Sharpe?

According to the Ninja summary screen, my first sim run was Sharpe = 3.33 over the last 3 months of 2016 test. This year from beginning of January to now, live Sharpe = 1.76. Is this good or bad? I don't understand Sharpe and how it really matters in the end, like MAE/MFE. Knowing those numbers is certainly is not helping me right now in fleshing out the trading plan. What does it actually mean in the grand scheme of things?

 

ON, did you know that folks who take short positions in March YM would need to cover that and then short June in order to still be short YM?

 

I am not sure what the YM has to do with my question about what the Sharpe ratio means.

 

But what can be gotten from the number? What makes it meaningful? If over a 5 year test the Sharpe is, say, 2.0, what can be gleaned? And what if after a 5 year test, your next 6 month period is a Sharpe of 1.0, or 5.2? What does it all mean, man?

 

Sharpe is a measure of consistency. A high sharpe over a long period of time means you are consistently winning and are likely to have a real edge.

 

It means your annualized return is roughly twice the standard deviation of returns.

It can help prospective investors determine how much capital can be allocated as it provides return and risk estimates. It can help risk managers identify when returns fall outside of the expectation...and it's also a standardized way of benchmarking.

It's easier to compare two return streams with a simple metric than anything else...dollars or percent returns are meaningless without some context for risk.

 

So a Sharpe of 1.76 means that I should invest more capital into trading the plan, or less? Does it mean I should take more risk, or less, as compared to the capital in the account? And how can an expectation be figured until the ratio is calculated after all is said and done, anyways?

I apologize...I do not mean to seem ignorant of all of this, but I am having the hardest time seeing the value of a lagging indicator. That is what pretty much every indicator/ratio/calculation is. It calculates based on the past. So how can it give guidance to the future, since the future can change radically, in the blink of an eye?

There's many a slip 'twixt the cup and the lip.

 

It's just another metric of your performance (like CAGR). No need to think too deeply into it.

 

Sharpe of 1.7 from 2017 onwards based on risk parity multi asset strategy. But I expect it to degrade by half in the long term or approx ~ 1

 

Inaccurate, go back and do it again.