SHARPE RATIO =
(Profit per Month – risk free Rate of Return) / standard deviation of monthly profits
... where ...
PROFIT PER MONTH =
( (1 + Cumulated Profit)^(1 / # of months)) - 1
... where ...
CUMULATED PROFIT =
PRODUCT(1 + profit / entry price) of all trades - 1
= = = = = = = =
In the case of a multi-instrument strategy working on two instruments (A & B), that each trade once a day (so there are 2 trades each day, 1 for A and 1 for B), is the reported (monthly) Sharpe Ratio for the strategy calculated the same way?
i.e. blending all trades all together, irrespective of the instrument, starting with the Cumulated Profit calculation, which assumes the result of each trade just compounds against the results of all other trades, even if the trades might be overlapping in time?
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