Wrong Definition of Sharpe Ratio in Zorro?

Posted By: vicknick

Wrong Definition of Sharpe Ratio in Zorro? - 05/29/23 06:32

In Zorro performance report, sharpe ratio is defined as "annualized ratio of mean and standard deviation of the bar returns when the system is in the market; Bar returns are bar profits divided by invested or required capital."

However, the actual definition does not depend on the invested capital, meaning if I risk 10% of $1000, or 1% of $10000, my sharpe ratio should be the same. This allows us to able to compare the risk-adjusted return of different strategies. But in Zorro, risking the same amount but with different Capital will result in different Sharpe ratio.
Posted By: jcl

Re: Wrong Definition of Sharpe Ratio in Zorro? - 06/02/23 12:19

https://en.wikipedia.org/wiki/Sharpe_ratio
Posted By: vicknick

Re: Wrong Definition of Sharpe Ratio in Zorro? - 06/04/23 06:30

But why when I increase the capital, the sharpe ratio increase as well? The definition is independent of the capital.
Posted By: jcl

Re: Wrong Definition of Sharpe Ratio in Zorro? - 06/05/23 14:21

Well, what happens when you increase the capital? That depends on your script, but usually you'll then get different profits, a different return, and of course a different Sharpe.

All data on which the Sharpe is based can be found in your log and performance report.
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