Saturday, December 19, 2009

Reviewing risk measurements on portfolios, Update: Released EzBacktest 0.9.3

Update: Sharpe and standard deviation added to EzBacktest, released today at version 0.9.3
Original Message:
While adding the risk measurement feature to EzBacktest, I'm reviewing several risk measurements and samples. If anyone has an opinion, please leave a comment:

Investopedia: Modern Portfolio Theory Stats Primer, Also: Measure Your Portfolio's Performance

Some blog: Calculate Your Own Portfolio’s Standard Deviation

Wikipidia: Sharpe ratio

Another blog, with an excel sheet: Risk Adjusted Return - Sharpe Ratio using MS excel sheet free

OK, so here's where things stand: I'm a bit confused. Generally - you'd calculate the standard deviation using years of sample data - however, you might only be presented with 1, 2 years or just months worth of data. The excel sample uses annualized std of monthly returns - which I ran through code - and it isn't the same as yearly. Also, some document the expected ratio as calculated from AVERAGE yearly returns, others from ANNUALIZED yearly returns. And I need to add that ANNUALIZED MONTHLY AVERAGE returns are simply completely different.

So there you have it, the feature is nearly complete - but I'm left with some statistical doubt regarding the results.


1 comment:

  1. Annualized standard deviation would be approximated by multiplying the monthly standard deviation by the square root of twelve. Morningstar uses this method.

    Have a look at the calculator at and compare your results with theirs (using DFA funds).