Investment Strategy Efficiency Statistics:
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Investment Strategy Efficiency Statistics: ??
One of the first things to consider when considering a new investment strategy is how you will measure its performance. There are a few things to consider when you do this. There are various ways to measure an investment strategy's efficiency. Once you have a comprehensive view of your investment's efficiency, you can use it to determine whether your strategy has any areas for improvement.??
Some of these include,
Sharpe Ratio:
The annualized Sharpe ratio (SR) is a metric that quantifies the risk-adjusted return of an investment. To annualize the SR, one multiplies the SR value by the square root of the number of returns observed per year. This common method assumes that returns are independently and identically distributed (IID).
Information Ratio:
The information ratio is a way of measuring a portfolio's performance against a benchmark. It considers the portfolio's annualized return above the benchmark's return and the standard deviation of the excess returns. This ratio is useful for determining whether or not a portfolio is outperforming its benchmark.
Probabilistic Sharpe Ratio:
PSR is a corrective measure for the Sharpe ratio that accounts for inflationary effects. A PSR of 0.95 demonstrates a high degree of accuracy and is significant at the 5% level. Probabilistic Sharpe ratios can be calculated with absolute or relative returns.
Deflated Sharpe Ratio:
DSR corrects Sharpe Ratio for inflationary effects caused by non-Normal returns, track record length, and multiple testing/selection bias. It can be computed on absolute or relative returns.
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Source: Marcos Lopez De Prado @ Advances in Financial Machine Learning
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