{"id":40890392,"date":"2023-12-06T13:22:09","date_gmt":"2023-12-06T07:52:09","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/?p=40890392"},"modified":"2023-12-06T13:22:10","modified_gmt":"2023-12-06T07:52:10","slug":"rolling-sharpe","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2023\/12\/06\/rolling-sharpe\/","title":{"rendered":"Rolling Sharpe"},"content":{"rendered":"\n<p>In an <a rel=\"noreferrer noopener\" href=\"https:\/\/stockviz.biz\/2023\/02\/23\/sharpe-vs-rates\/\" target=\"_blank\">earlier post<\/a>, we discussed how the risk-free rate influences the Sharpe Ratio. Another problem with using lifetime Sharpe to gauge investments is that if you are in the middle of a bull market, then everything looks good.<\/p>\n\n\n\n<p>For example, our<a href=\"https:\/\/stockviz.biz\/theme-eq\/BB3B520D-E257-4881-8340-A4F46F44DC4C\" target=\"_blank\" rel=\"noreferrer noopener\"> All Stars<\/a> strategy recently hit a Sharpe of 2.0, which is sort of a holy grail in investing. However, if you had looked at it a few months ago, when it was still recovering from a drawdown, you would&#8217;ve stayed clear of it. So, what changed? The everything rally in stocks.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"585\" src=\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/12\/ath-1024x585.png\" alt=\"\" class=\"wp-image-40890393\" srcset=\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/12\/ath-1024x585.png 1024w, https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/12\/ath-300x171.png 300w, https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/12\/ath-768x439.png 768w, https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/12\/ath-250x143.png 250w, https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2023\/12\/ath.png 1400w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>One way to avoid falling into this trap is to also look at the rolling Sharpe ratio over the life of the strategy.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/volatility\/sharpe\/rolling-sharpe.All%20Stars.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>While this is particularly true for momentum strategies that all look exceptional in bull markets, value strategies are not immune to this effect either.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/sharpe\/rolling-sharpe.Financial%20Strength%20Value.png\" alt=\"\" \/><\/figure>\n\n\n\n<p>Lifetime metrics are also sensitive to launch dates as well. Long running strategies would&#8217;ve seen their fair share of market ups and downs compared to newer ones launched during bear markets. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/volatility\/sharpe\/rolling-sharpe.Momentum.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>Rolling metrics will help investors get a better idea about strategy performance.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In an earlier post, we discussed how the risk-free rate influences the Sharpe Ratio. Another problem with using lifetime Sharpe to gauge investments is that if you are in the middle of a bull market, then everything looks good. For example, our All Stars strategy recently hit a Sharpe of 2.0, which is sort of &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2106273,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[960,4033],"class_list":["post-40890392","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-returns","tag-risk","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890392","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=40890392"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890392\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2106273"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=40890392"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=40890392"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=40890392"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}