Log or simple returns in the backtest results of the financial toolbox

Hi,

Is it the log returns or simple returns that are used to calculate the metrics (Sharpe Ratio, Volatility,...) in the backtest results of the financial toolbox (see below)?

Do you have the codes of the different ratios, please?

Thank you for your help.

Florent Comte

Answer 1

[Shantanu Dixit]

Hi Florent,

I also had a similar question about whether the backtest results in MATLAB's Financial Toolbox use simple returns or log returns for calculating metrics like the Sharpe Ratio and Volatility.

After reviewing the 'runBacktest' and 'backtestEngine' documentation, I found that these functions use the tick2ret function to convert price series into return series. By default, tick2ret calculates simple periodic returns unless specified otherwise. You can choose to calculate log returns by setting the 'Method' parameter to 'Continuous'. However, since the default is simple returns, we can assume that the backtest results use simple returns by default.

For more detailed information on the Sharpe Ratio and other metrics, you can refer to these resources:

tick2ret: www.mathworks.com/help/finance/tick2ret.html

sharpe: www.in.mathworks.com/help/finance/sharpe.html

sharpe ratio formula: www.mathworks.com/help/finance/using-the-sharpe-ratio.html

runBackTest: www.mathworks.com/help/finance/backtestengine.runbacktest.html