Click here to Login








Sharpe Ratio Ranking System to Lower Trading Strategies Volatility

by Patrick Fonce, 4910 days ago
Share |


The Sharpe ratio is certainly the most popular measure of the performance of investment strategies or trading systems. It is a measure of the risk premium or excess return per unit of risk. It is calculated by subtracting the risk free from the portfolio's return and then dividing the result by the portfolio's volatility, often calculated as the standard deviation.

One of the main advantages of the Sharpe ratio is its ability to produce a measure of a portfolio that takes into account both return and risk. It is also popular because of its capacity to compare different portfolios performance.
The main problem with the Sharpe ratio is that it cannot be used to compare portfolios that have negative Sharpe values and thus it isn't of great help in period of declining markets.

The Sharpe ratio was developed by William Forsyth Sharpe. He used this metric to rank different stocks and then build a trading system that buys the top X securities with the highest Sharpe ratio.

The same idea is used in this trading system. The system doesn't contain any trading rule (you will have to provide your own buy and sell rules); however it contains a ranking system that sorts stocks according to the Sharpe ratio of their close price during the last 60 days. This value can of course be changed (You can set it to the annualized Sharpe ratio for example) and optimized.

For each trading period, buy signals will be ranked according to the Sharpe ratio of the signal's security.

By applying the ranking system to one of my portfolios, I was able to increase the overall trading system's return and decrease its maximum drawdown. The strategy's Sharpe ratio increased mainly because the portfolio's volatility has decreased.

The ranking system that is applied to the trading strategy contains the vector-based "Sharpe" rule.

Other strategies' metrics, such as the Treynor ratio, Jensen's alpha, Calmar ratio, Sortino ratio can also be used to rank stocks in order to reduce the volatility of your investment strategies.




You have to log in to bookmark this object
What is this?




Type: Trading System

Object ID: 547


Country:
All

Market: All

Style:
All

Reviews
You must log in first

Join now
and get instant access for free to the trading software, the Sharing server and the Social network website.
Click here


Related objects
Show All
Double Bollinger Bands Trading System (by MikeMM, uploaded several months ago)
No notes

Rate an item Rate an item Rate an item Rate an item Rate an item Number of downloads 91 Notes Report an item
Generic Trading System Template (by SystemTrade, uploaded several months ago)
No notes

Rate an item Rate an item Rate an item Rate an item Rate an item Number of downloads 273 Notes Report an item
Pairs Trading Strategy (by QuantShare, uploaded several months ago)
No notes

Rate an item Rate an item Rate an item Rate an item Rate an item Number of downloads 200 Notes Report an item
Multiple Time Frames Trading System - Price / Moving Average Crossover (by QuantShare, uploaded several months ago)
No notes

Rate an item Rate an item Rate an item Rate an item Rate an item Number of downloads 205 Notes Report an item
Average Stock Standard Deviation by Industry (by QuantShare, uploaded several months ago)
No notes

Rate an item Rate an item Rate an item Rate an item Rate an item Number of downloads 35 Notes Report an item
Channel Drawing Tool (by Juliettpapa, uploaded several months ago)
No notes

Rate an item Rate an item Rate an item Rate an item Rate an item Number of downloads 30 Notes Report an item
Interconnections Drawing Item (by QuantShare, uploaded several months ago)
No notes

Rate an item Rate an item Rate an item Rate an item Rate an item Number of downloads 16 Notes Report an item
Number of reviews
Click to add a review
Average rate
Click to rate this item
Number of times this object was downloaded
Number of rates the current object received
Report an object
if you can't run it for example or if it contains errors
Click to report this object

Technical Analysis


Fundamental Analysis



Random Blog Posts

Create a stock index or a trading indicator using the composite tools

Create a trading strategy using the money management tool - Part 2

Create a trading strategy using the money management tool - Part 1

How to create a market timing system - Part 3

Correlation of market indicators

How to create a market timing system

Backtesting Process

Trading software new features

Show All

Number of reviews
Click to add a review
Average rate
Click to rate this item
Number of times this object was downloaded
Number of rates the current object received
Report an object
if you can't run it for example or if it contains errors
Click to report this object






QuantShare
Product
QuantShare
Features
Create an account
Affiliate Program
Support
Contact Us
Trading Forum
How-to Lessons
Manual
Company
About Us
Privacy
Terms of Use

Copyright 2023 QuantShare.com
Social Media
Follow us on Facebook
Twitter Follow us on Twitter
Google+
Follow us on Google+
RSS Trading Items



Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.