advanced-algorithmic-trading

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In order to use the annualised rolling Sharpe in a strategy backtest it remains to turn on the
flag in a strategy backtest file where the tearsheet is instiated:
..
..
# Use the Tearsheet Statistics
title = ["Example Systematic Trading Strategy"]
statistics = TearsheetStatistics(
config, portfolio_handler, title,
benchmark="SPY", rolling_sharpe=True
)
..
..
In the next section a selection of updated tearsheets will be generated for various strategies
that have been presented in the book so far.
32.3 Strategy Results
All of the strategies displayed here are found within previous chapters of the book. The results
will simply be redisplayed with the addition of the annualised rolling Sharpe ratio tearsheet
visualisation.
32.3.1 Kalman Filter Pairs Trade
Figure 32.1 displays the performance of the Kalman Filter Pairs Trade strategy.
The rolling annualised Sharpe ratio calculation for the strategy begins just over midway into
2010, after 252 trading periods. The Sharpe ratio initially trends up in excess of 2.0 through
mid-2011 but a period of large returns volatility, culminating in flat and subsequently dwindling
performance through 2012 reduces the Sharpe ratio heavily in this period to negative territory.
After the strategy picks up again in mid-2013 the annualised Sharpe slowly recovers back
towards 2.0. Although by the end of 2016 it is unclear if the strategy is beginning to decay once
again.
Note how difficult it would have been at the end of 2012, in a live implementation, to determine
if the strategy would need retiring due to the long downward trend in annualised Sharpe. This
highlights how important it is to have a solid understanding of the statistical behaviour of the
returns distribution in a backtest.
32.3.2 Aluminum Smelting Cointegration Strategy
Figure 32.2 displays the performance of the Aluminum Smelting Cointegration strategy.
Since this strategy is carried out over a relatively short time frame (just under two years) the
rolling annualised Sharpe is only calculated for a short period.
Initially the Sharpe ratio is high at approximately 2.25. This is a consequence of the rapid
increase in performance in early 2015, which soon flattens out. Once these high return periods
have "fallen out" of the rolling calculation the Sharpe ratio rapidly decreases to -0.5 during the
early half of 2016, which it remains at through to the end of 2016.