Default Sharpe Ratio excludes months without trades, desirable?

[usuallywin]

Hi,

It is a question regarding programming as well as finance. I have been trying to calculate the sharpe ratio of a strategy independently.

First, can you please provide the formula used by the Strategy Analyzer to calculate the standard deviation for the Sharpe ratio.

The reason I ask is because it seems to me that when the system calculates the standard deviation, months with no trades are not included, instead of treating them as having zero profit for the month. This can cause significant deviation from the theoretical value when a strategy only operates on a few months in a year.

Second, if it is the case, is it a desirable and deliberate design by NinjaTrader's developers? What is the purpose of that?

Thanks.

[NinjaTrader_CalH]

Hello Usuallywin,

Thank you for your post.

Below is a link explaining the different statistics and their definitions.
http://www.ninjatrader.com/support/h...efinitions.htm

If there is data less than a month then the Ratio is set to 1

[usuallywin]

Hi,

I have read the description of the statistics. But I am interested in the SD used in the Sharpe ratio which is not provided.

It is actually fairly important to know if NinjaTrader includes months with no trade in that calculation. By months with no trade, I mean there is no trade in 3 out of 12 months in a year, not that it is shorter than a month.

Thanks again

[NinjaTrader_PatrickH]

Hello usuallywin,

Thank you for your response.

It would include months with no profit, as it is simply the profit per month not if there was profit in the month. The Standard Deviation would be the same as the indicator: http://www.ninjatrader.com/support/h...ion_stddev.htm

[usuallywin]

The sharpe is the profit/Standard Deviation.

As I can see from the description that it is the monthly profit that is used. However, my concern is the calculation of the standard deviation.

When I calculate the standard deviation with all the months including ones with no trades, the output sharpe is very different from the one provided by Ninjatrader. But when I exclude these months, they are almost identical.

Can you please look into that?

[NinjaTrader_PatrickH]

Hello usuallywin,

I can look into this for you. Please provide the calculation you used and the data.