How is C2 calculating Sharpe Ratio? I can't replicate the results

C2
1

How is C2 calculating Sharpe Ratio? I have downloaded the trading history for several different systems to try to reproduce the sharpe that C2 reports, but my numbers aren’t matching up to what C2 is showing. I have tried calculating and annualizing in several ways. I want to make sure that I’m comparing apples to apples when comparing the Sharpe’s C2 is reporting to the Sharpe’s being reported by mutual funds, other sites, etc…

Any help is appreciated. Thanks!

1 Like
2

It often seems a bit high. Perhaps monthly data is being used.

1 Like
3

Would be interesting to know it

4

I asked this some years back and was told:

When calculating sharpe, you need to plug in the risk free rate used (4.5%) the # of days per year (344, because of trade holidays), and the period used for measurement (month, I think).

1 Like
5

David, If they haven’t adjusted the risk-free rate from 4.5% then that’s a problem. Should be significantly less now, which would affect the calculation.

Matthew please clarify!

Jim

1 Like
6

Risk free rate hasn’t been 4.5% for over a decade now, but in any case a high risk free rate would make sharp ratio smaller than it should be, not larger.
Number of trading days in a year is closer to 252. On average 52 weeks a year X 5 minus 8 holidays.

7

The email I was quoting was from 2009. Maybe not so relevant now :slight_smile:

2 Likes
8

I’ve tried using multiple methods:

  1. Changing the risk free rate
  2. Calculating based on day
  3. Calculating based on months (aggregating the trades by month)
  4. Calculating based on number of trades
  5. Calculating based on total days in a year
  6. Calculating based on trading days in a year
    Several more… Those are just the ones I can remember. I haven’t been able to get anything that is consistently in the ballpark of the sharpe’s on C2. Sometimes I’ll have one that matches up on one system, but then not on others.
    Matthew - any input?
9

We were able to reproduce it using the following inputs from C2’s statistics:

Portfolio Return:
Statistics -> Return Statistics -> Ann Return (w trading costs)

Risk Free Rate:
{using 15 day old 10 year treasury rate as input, 2.22% as of June 28, 2017}

Portfolio Standard Deviation:
RATIO STATISTICS -> Ratio statistics of excess return rates -> Statistics related to Sharpe ratio -> SD

Sharpe = (Portfolio Return - Risk Free Rate) / Portfolio Standard Deviation