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quantopian / empyrical

Common financial risk and performance metrics. Used by zipline and pyfolio.
https://quantopian.github.io/empyrical
Apache License 2.0
1.27k stars 398 forks source link

Community Contributions #125

Open shaneding opened 4 years ago

shaneding commented 4 years ago

Are open source contributions still welcomed/wanted? If so are there any active issues? I had a look at github issues, but they all seemed pretty outdated.

BrandonStaab commented 2 years ago

Improving the annualization of the Sharpe or Sortino ratios would be of great significance

https://alo.mit.edu/wp-content/uploads/2017/06/The-Statistics-of-Sharpe-Ratios.pdf

jonathanng commented 2 years ago

@BrandonStaab, what is wrong with the annualization as it is?

BrandonStaab commented 2 years ago

@jonathanng

From the paper:

"... monthly Sharpe ratios cannot be annualized by multiplying by sqrt(12) except under very special circumstances, and I derive the correct method of conversion in the general case of stationary returns."

The assumptions being made don't hold up in practice and leads to both over estimation and under estimation of the predicted Sharpe ratio. Each trading period is almost certainty not iid and thus assuming they are might be good enough, but can lead to poor approximations of the true ratio. Correcting for autocorrelations is still just an approximation as the true Sharpe ratio is an unobservable statistic.