Using geom_step

Posted on Categories TutorialsTags , , , , 4 Comments on Using geom_step

geom_step is an interesting geom supplied by the R package ggplot2. It is an appropriate rendering option for financial market data and we will show how and why to use it in this article.

Continue reading Using geom_step

What is a good Sharpe ratio?

Posted on Categories Finance, Mathematics, Opinion, TutorialsTags , , 6 Comments on What is a good Sharpe ratio?

We have previously written that we like the investment performance summary called the Sharpe ratio (though it does have some limits).

What the Sharpe ratio does is: give you a dimensionless score to compare similar investments that may vary both in riskiness and returns without needing to know the investor’s risk tolerance. It does this by separating the task of valuing an investment (which can be made independent of the investor’s risk tolerance) from the task of allocating/valuing a portfolio (which must depend on the investor’s preferences).

But what we have noticed is nobody is willing to honestly say what a good value for this number is. We will use the R analysis suite and Yahoo finance data to produce some example real Sharpe ratios here so you can get a qualitative sense of the metric. Continue reading What is a good Sharpe ratio?

Relative returns: a banker versus trader paradox

Posted on Categories Opinion, Rants, StatisticsTags , , , , 1 Comment on Relative returns: a banker versus trader paradox

Quick Joke.

Q: What is the difference between a banker and a trader?
A: A banker will try and tell you a 10% loss followed by a 10% gain is breaking even.

Continue reading Relative returns: a banker versus trader paradox

Thievery considered harmful

Posted on Categories Finance, Opinion, RantsTags , 1 Comment on Thievery considered harmful

A bit of a tempest in finance news involving accusations of sensitive code stolen from a major trading desk. For emerging details see:

Continue reading Thievery considered harmful

A Quick Appreciation of the Sharpe Ratio

Posted on Categories Applications, Expository Writing, FinanceTags , ,

The current state of the global financial markets has gotten more people than usual worrying about the technical aspects of finance. One method for reasoning about investment returns and risk is a tool called the Sharpe Ratio. It is well worth reviewing this measure and seeing how, if used properly, it doesn’t favor any of the mistakes that underly our current financial crisis. Continue reading A Quick Appreciation of the Sharpe Ratio