What are Sharpe returns relative to?
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The FAQ says that your calculation of the Sharpe ratio uses "the time series of the daily relative returns during a Competition".
The 1966 formulation of the Sharpe ratio uses the difference of returns and a risk-free return (such as government security), while others might use a benchmark against the relevant security (S&P500).How are relative returns calculated for the Sharpe ratio in Competition scoring?
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@damnedlies Hello:
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we are taking relative daily returns, in other words the ratio: [price(t)-price(t-1)]/price(t-1)
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we are using no benchmark.
Note also that we apply reinvesting when computing the numerator of the Sharpe ratio (geometric mean)
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Sharpe returns measure how much extra return you get for the risk you take and relative to a risk-free investment. It helps compare investments risk adjusted performance.
