def get_tracking_error(strategy, benchmark, start_date, end_date) -> float:
'''calculates the tracking error of a strategy compared to a benchmark'''
assert check_prices(strategy=strategy, benchmark=benchmark)
assert check_time(start_date=start_date, end_date=end_date)
ann_ex_r = get_annualized_excess_return(strategy, benchmark, start_date,
end_date)
ir = get_information_ratio(strategy, benchmark, start_date, end_date)
tracking_error = ann_ex_r / ir
return tracking_error
def get_daily_returns(prices) -> pd.Series:
'''calculates the daily returns of a prices time-series'''
assert check_prices(prices=prices)
prices.sort_index(inplace=True) # make sure dates is in ascending order
daily_change = [0]
for i in range(1, len(prices)):
yesterday = prices[i - 1]
today = prices[i]
change = round((today - yesterday) / yesterday, 4)
daily_change.append(change)
daily_change = pd.Series(data=daily_change, index=prices.index)
return daily_change
def get_risk_adjusted_return(prices, start_date, end_date) -> float:
'''calculates the risk-adjusted return of a prices time-series between two dates'''
assert check_prices(prices=prices)
assert check_time(start_date=start_date, end_date=end_date)
prices = prices.loc[start_date:end_date]
start_date, end_date = prices.index[0], prices.index[-1]
ann_rtn = get_annualized_return(prices, start_date, end_date)
vo = get_strategy_volatility(prices, start_date, end_date)
risk_adj_rtn = ann_rtn / vo
risk_adj_rt = round(risk_adj_rtn, 4)
return risk_adj_rt
def get_cumulative_return(prices, start_date, end_date) -> float:
'''calculates the cumulative return between two dates'''
assert check_prices(prices=prices)
assert check_time(start_date=start_date, end_date=end_date)
prices.sort_index(inplace=True) # make sure dates is in ascending order
prices = prices.loc[start_date:end_date]
start_date, end_date = prices.index[0], prices.index[-1]
cost = prices[start_date]
revenue = prices[end_date]
cum_rtn = (revenue - cost) / cost
cum_rtn = round(cum_rtn, 4)
return cum_rtn
def get_strategy_volatility(prices, start_date, end_date) -> float:
'''calculates the volatility of a prices time-series between two dates'''
assert check_prices(prices=prices)
assert check_time(start_date=start_date, end_date=end_date)
change = prices.pct_change().dropna()
change = change[change != 0]
change_avg = np.mean(change)
daily_sum = np.sum([(c - change_avg)**2 for c in change])
vo = np.sqrt((250 / ((end_date - start_date).days - 1)) * daily_sum)
vo = round(vo, 4)
return vo
def get_excess_return(strategy, benchmark, start_date, end_date) -> float:
'''calculates the excess return of a strategy over a benchmark between two dates'''
assert check_prices(strategy=strategy, benchmark=benchmark)
assert check_time(start_date=start_date, end_date=end_date)
strategy = strategy.loc[start_date:end_date]
benchmark = benchmark.loc[start_date:end_date]
start_date, end_date = strategy.index[0], strategy.index[-1]
r_strategy = get_daily_returns(strategy)
r_benchmark = get_daily_returns(benchmark)
excess_return = (r_strategy - r_benchmark).cumsum()
excess_return = round(excess_return, 4)
return excess_return
def get_annualized_excess_return(strategy, benchmark, start_date,
end_date) -> float:
'''calculate the annuliazed return of a strategy compared to a benchmark'''
assert check_prices(strategy=strategy, benchmark=benchmark)
assert check_time(start_date=start_date, end_date=end_date)
strategy = strategy.loc[start_date:end_date]
benchmark = benchmark.loc[start_date:end_date]
start_date, end_date = strategy.index[0], strategy.index[-1]
strategy_return = get_annualized_return(strategy, start_date, end_date)
market_return = get_annualized_return(benchmark, start_date, end_date)
ann_ex_rtn = strategy_return - market_return
ann_ex_rtn = round(ann_ex_rtn, 4)
return ann_ex_rtn
def get_sharpe_ratio(prices, start_date, end_date, risk_free=0.04) -> float:
'''calculates the sharpe ratio of a prices time-series between two dates'''
assert check_prices(prices=prices)
assert check_time(start_date=start_date, end_date=end_date)
assert 0 <= risk_free <= 1, 'the risk free rate must be between 0 and 1'
prices = prices.loc[start_date:end_date]
start_date, end_date = prices.index[0], prices.index[-1]
ann_rtn = get_annualized_return(prices, start_date, end_date)
excess_rtn = ann_rtn - risk_free
vo = get_strategy_volatility(prices, start_date, end_date)
sharpe_ratio = excess_rtn / vo
sharpe_ratio = round(sharpe_ratio, 4)
return sharpe_ratio
def get_max_drawdown(prices, start_date, end_date) -> float:
'''calculates the maximum drawdown of a prices time-series between two dates'''
assert check_prices(prices=prices)
assert check_time(start_date=start_date, end_date=end_date)
prices = prices.loc[start_date:end_date]
start_date, end_date = prices.index[0], prices.index[-1]
max_drawdown = 0
# for each day, get the lowest price in the period after
for day in prices.index:
day_price = prices[day]
lowest = prices.loc[day:].min()
drawdown = (day_price - lowest) / day_price
if drawdown > max_drawdown:
max_drawdown = drawdown
max_drawdown = round(max_drawdown, 4)
return max_drawdown
def get_beta(strategy, benchmark, start_date, end_date) -> float:
'''calculates the beta of a prices time-series between two dates'''
assert check_prices(strategy=strategy, benchmark=benchmark)
assert check_time(start_date=start_date, end_date=end_date)
strategy = strategy.loc[start_date:end_date]
benchmark = benchmark.loc[start_date:end_date]
start_date, end_date = strategy.index[0], strategy.index[-1]
r_strategy = get_daily_returns(strategy)
r_benchmark = get_daily_returns(benchmark)
var = np.var(r_benchmark, ddof=1)
cov = np.cov(r_strategy, r_benchmark)[0][1]
beta = cov / var
beta = round(beta, 4)
return beta
def get_information_ratio(strategy, benchmark, start_date, end_date) -> float:
'''calculates the information ratio of a prices time-series between two dates'''
assert check_prices(strategy=strategy, benchmark=benchmark)
assert check_time(start_date=start_date, end_date=end_date)
excess_return = get_annualized_excess_return(strategy, benchmark,
start_date, end_date)
strategy_daily = get_daily_returns(strategy)
benchmark_daily = get_daily_returns(benchmark)
strategy_daily = strategy_daily[strategy_daily != 0]
benchmark_daily = benchmark_daily[benchmark_daily != 0]
daily_excess_return = strategy_daily - benchmark_daily
daily_stdev = np.std(daily_excess_return) * np.sqrt(250)
ir = excess_return / daily_stdev
ir = round(ir, 4)
return ir
def get_daily_win_rate(strategy, benchmark, start_date, end_date) -> float:
'''calculates the daily win rate of a strategy compared to a benchmark'''
assert check_prices(strategy=strategy, benchmark=benchmark)
assert check_time(start_date=start_date, end_date=end_date)
strategy = strategy.loc[start_date:end_date]
benchmark = benchmark.loc[start_date:end_date]
start_date, end_date = strategy.index[0], strategy.index[-1]
r_strategy = get_daily_returns(strategy)
r_benchmark = get_daily_returns(benchmark)
daily_diff = r_strategy - r_benchmark
win = 0
for day in daily_diff:
if day > 0:
win += 1
daily_win_rate = win / len(daily_diff)
daily_win_rate = round(daily_win_rate, 4)
return daily_win_rate
def get_alpha(strategy,
benchmark,
start_date,
end_date,
risk_free=0.04) -> float:
'''calculates the alpha of a prices time-series between two dates'''
assert check_prices(strategy=strategy, benchmark=benchmark)
assert check_time(start_date=start_date, end_date=end_date)
assert 0 <= risk_free <= 1, 'the risk free rate must be between 0 and 1'
strategy = strategy.loc[start_date:end_date]
benchmark = benchmark.loc[start_date:end_date]
start_date, end_date = strategy.index[0], strategy.index[-1]
market_return = get_annualized_return(benchmark, start_date, end_date)
beta = get_beta(strategy, benchmark, start_date, end_date)
capm = risk_free + beta * (market_return - risk_free
) # asset price under the CAPM model
annualized_return = get_annualized_return(strategy, start_date, end_date)
alpha = annualized_return - capm
alpha = round(alpha, 4)
return alpha
def show_metrics(strategy, benchmark, holdings, df_price):
'''
prints out a chart that shows columns of metrics
Parameters
----------
strategy : pandas.Series
the performance of the strategy being backtested
benchmark : pandas.Series
the performance of the benchmark used in backtest
'''
assert check_prices(strategy=strategy, benchmark=benchmark)
start_date = strategy.index[0]
end_date = strategy.index[-1]
benchmark = benchmark.loc[start_date:end_date]
date_range = pd.date_range(start=start_date, end=end_date)
benchmark = benchmark.reindex(date_range, method='ffill')
benchmark.fillna(method='bfill', inplace=True)
cum_r = get_cumulative_return(strategy, start_date, end_date)
ann_r = get_annualized_return(strategy, start_date, end_date)
ann_ex_r = get_annualized_excess_return(strategy, benchmark, start_date,
end_date)
max_dd = get_max_drawdown(strategy, start_date, end_date)
vo = get_strategy_volatility(strategy, start_date, end_date)
risk_adj = get_risk_adjusted_return(strategy, start_date, end_date)
sharpe = get_sharpe_ratio(strategy, start_date, end_date)
ir = get_information_ratio(strategy, benchmark, start_date, end_date)
beta = get_beta(strategy, benchmark, start_date, end_date)
alpha = get_alpha(strategy, benchmark, start_date, end_date)
win_r = get_win_rate(start_date, end_date, holdings, df_price)
win_r_d = get_daily_win_rate(strategy, benchmark, start_date, end_date)
pl = get_pl_ratio(start_date, end_date, holdings, df_price)
to_r = get_turnover_ratio(start_date, end_date, holdings, df_price)
trk_err = get_tracking_error(strategy, benchmark, start_date, end_date)
print('\n============================================')
print('| Key Metrics ')
print('============================================')
print(f'| Start Date: {start_date.date()}')
print(f'| End Date: {end_date.date()}')
print('============================================')
print(f'| Cumulative Return: {round(cum_r*100, 2)}%')
print(f'| Annualized Return: {round(ann_r*100, 2)}%')
print(f'| Annualized Excess: {round(ann_ex_r*100, 2)}%')
print(f'| Maximum Drawdown: {round(max_dd*100, 2)}%')
print('============================================')
print(f'| Risk Adjusted: {round(risk_adj, 3)}')
print(f'| Information Ratio: {round(ir, 3)}')
print(f'| Sharpe Ratio: {round(sharpe, 3)}')
print(f'| Volatility: {round(vo, 3)}')
print('============================================')
print(f'| Alpha: {round(alpha, 3)}')
print(f'| Beta: {round(beta, 3)}')
print('============================================')
print(f'| Win Rate: {round(win_r*100, 2)}%')
print(f'| Daily Win Rate: {round(win_r_d*100, 2)}%')
print(f'| Profit-Loss Ratio: {round(pl, 1)} : 1')
print('============================================')
print(f'| Turnover Ratio: {round(to_r*100, 2)}%')
print(f'| Tracking Error: {round(trk_err*100, 2)}%')
print('============================================')
