sharpe ratio in Financial time series toolbox

Dear all,

I used the "sharpe" function to calculate the sharpe ratio of my monthly return data. But the result is different from the the function I wrote using the definition from http://financetrainingcourse.com/education/2011/04/market-risk-metrics-sharpe-and-treynor-ratios/.

Here is my code:

RI = (sum(Return))*12/N; % holding period return
MonSigma = std(Return); % monthly volatility
AnuSigma = MonSigma*sqrt(12); % annual volatility
IPO.SharpeRatio = (RI-RIF)/AnuSigma;

could anyone help me out with this?

Thank you.

[james]

% Sharpe Ratio Calculation using Financial Time Series Toolbox

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% [Chart Patterns for Effective Intraday]

% Example data: Replace with your actual return series

% Assume 'returns' is a vector of asset returns (e.g., daily returns)

returns = [0.01, -0.005, 0.007, 0.002, -0.003, 0.004, 0.006]; % Sample data

% Define the risk-free rate (annualized). Adjust based on your context.

riskFreeRateAnnual = 0.02; % 2% annual risk-free rate

% Convert annual risk-free rate to the same period as returns (e.g., daily)

% Assuming 252 trading days in a year

riskFreeRate = riskFreeRateAnnual / 252;

% Calculate excess returns

excessReturns = returns - riskFreeRate;

% Compute the mean and standard deviation of excess returns

meanExcessReturn = mean(excessReturns);

stdExcessReturn = std(excessReturns);

% Calculate the Sharpe Ratio (assuming returns are in the same period as risk-free rate)

sharpeRatio = meanExcessReturn / stdExcessReturn;

% Annualize the Sharpe Ratio if needed

% sharpeRatioAnnualized = sharpeRatio * sqrt(252);

% Display the Sharpe Ratio

fprintf('Sharpe Ratio: %.4f\n', sharpeRatio);

% fprintf('Annualized Sharpe Ratio: %.4f\n', sharpeRatioAnnualized);

Answer 1

[Sean de Wolski]

Just run:

edit sharpe

Scroll down and you can see exactly what it's doing. Looks like likes 75:79 are the engine.

[Kaijie Cui]

Thank you for your answer. I checked the sharpe source code, the problem is I do not understand what kind of data is the function "sharpe" working with, annual return? monthly? or daily? That might be financial question not Matlab question...

[Sean de Wolski]

It describes it in the doc for sharpe and provides an example.