The correlation between the performance of an asset and the strategy used to trade it refers to how closely the outcomes of your trading strategy match the price movements of the asset. The correlation can change over time as market conditions change. For example, a strategy that works well during periods of high volatility might not perform well when markets are calm, and vice versa.
With this update, we’ve also made some changes to the way certain Tabular Data metrics are calculated.
Sharpe Ratio and Sortino Ratio
The Sharpe and Sortino ratios that we calculate are trailing metrics. Each of them uses a sliding window that depends on the timeframe of your backtest. For shorter timeframes, like 15 minutes, the window size is smaller (30 days), while for a backtest on a Daily chart, the window size is larger (90 days).
We compute these metrics day by day, moving from left to right, similar to how a simple moving average is calculated. When calculating the ratio, we use the risk-free return ratio from the corresponding point in time. For example, if we are calculating the Sharpe ratio for Jan 2020, we use the risk-free return ratio from Jan 2020.
When calculating the Sharpe ratio, we use “daily performance”. We separate your equity curve into days, and then we compute trailing Sharpe day by day. The same principle applies to the Sortino ratio and the realized volatility calculation. Be aware that it might create biased estimates for intraday strategies. The approximate formula for Sharpe in our case is as follows;
Sharpe = (DAILY_PERF - RISK_FREE_DAILY_PERF) / stdev(return) * sqrt(BUSINESS_DAYS_IN_YEAR);
The risk-free return rate we use is based on the 10-year bond yield, sourced from the Federal Reserve. You can access and verify this data in the “Other Data” tab using the provided free data.
The Correlation value is now offered within Tabular Data. It represents the correlation between Buy & Hold and the performance of your strategy. It is computed as Pearson of per-candle change% curves (i.e, for every candle we use change% of your portfolio since the last candle, and do the same with Buy & Hold)
Beta is now computed via the correlation between the “candle change% curve”, where each value is “portfolio change% since the previous candle”. This new methodology is more in line with the standard way of thinking about Beta and will yield different results for some strategies. In some instances, the differences will be quite noticeable whereas in others it will not be.
It is now possible to zoom into specific areas on the Performance Chart you might be interested in more closely inspecting. To do this, simply click and drag to highlight the section of the chart you’re interested in.
The chart will automatically expand the highlighted section to encompass the full width of the chart view.