How exactly does Amibroker calculate Sharpe Ratio? The calculation method described in the part of the Amibroker guide that talks about the backtest report (website: https://www.amibroker.com/guide/w_report.html) is not consistent with Sharpe Ratio figures of my backtest reports.
For example, attached is a picture of all the trades from a sample backtest (date range 2/1/2018-2/9/2018). Metrics used to calculate Sharpe Ratio (according to the Amibroker guide) are as follows:
-Average % return: 0.99% (the average of the figures in the "% Profit" column)
-SD of returns: 3.42% (the SD of the figures in the "% Profit" column)
-Number of bars per year: 252 (test was done on daily bars and there are 252 trading days per year)
-Average number of bars per trade: 4.42 (the average of the figures in the "# bars" column)
-Annualized average % return: 56% (calculation = 0.99%(252/4.42))
-Annualized SD of returns: 195% (calculation = 3.42%(252/4.42))
-Risk Free Rate: 0
-Sharpe Ratio: 56%/195% = 0.29
However, the backtest report is showing a Sharpe Ratio of 2.18.
I'm consistently seeing much higher Sharpe Ratios in my backtest reports than when I calculate Sharpe Ratio myself using the methodology described in the guide. Am I missing something?
You don't calculate it the way it is described in the guide. Re-read the guide precisely. Besides what version you are using? Anything lower than 6.0 is not supported.
Hi Tomasz- I am using 6.20. The guide says: "Calculation: first average percentage return and standard deviation of returns is calculated. Then these two figures are annualized by multipling them by ratio (NumberOfBarsPerYear)/(AvgNumberOfBarsPerTrade). Then the risk free rate of return is subtracted (currently hard-coded 5) from annualized average return and then divided by annualized standard deviation of returns."
Here is the step by step process according to this description:
1.) "First average percentage return" --> 0.99%
2.) "and SD deviation of returns is calculated" --> 3.42%
3.) "Then these two figures are annaulized by multiplying them by ratio ((NumberOfBarsPerYear)/(AvgNumberOfBarsPerTrade)" --> Ratio is 252/4.42 = 57. So annualized average return is 0.99%*57, or 56%. And annualized SD of returns is 3.42%*57, or 195%.
4.) "Then the risk free rate of return is subtracted from annualized average return" --> 56%-0% - 56% (I set risk free rate to zero in the settings)
5.) "And then divided by annualized SD of returns" --> 56%/195% = 0.29
It's a very simple description. Not sure how else it can be interpreted. Can you please tell me how the program is getting a Sharpe Ratio of 2.18?
I think that to annualize standard deviation you need to multiply by the square root of the ratio (NumberOfBarsPerYear)/(AvgNumberOfBarsPerTrade). Making this change to your calculations gives me a result of 2.17.
