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Re: How to compute Sharpe ratio for a high frequency multi-asset long/short strategy

Home 21090308 Forums Re: How to compute Sharpe ratio for a high frequency multi-asset long/short strategy

#2046
haksunli
Keymaster

Thank you Kevin for the ingenious insight.

If I understand you correct, to implement the SR computation, we need to keep track of a running capital [tex]V_t[/tex]. Then, we compute the return [tex]R_t[/tex] at some predetermined time points.

A few question –
1.
Where does the [tex]$3.67[/tex] in your discussion come from? Sorry I couldn’t figure it out…  :-[

2.
How should we compute the SR for a basket? E.g., we trade a pair of [tex]Z = X – alpha Y[/tex]. Suppose X and Y are traded at different times, as in Ken’s example. So we can compute [tex]SR_X[/tex] and [tex]SR_Y[/tex], how do we “combine” them somehow to compute [tex]SR_Z[/tex]? Or, do we compute [tex]SR_Z[/tex] directly without computing for the individual assets separately?