Beeminder Forum

What's the sharpe for the SPY year to date?

Just passing along from a twitter puzzle:
What’s the sharpe for the SPY year to date? Bonus: does your portfolio have a sharpe as high? :smiley:
Maybe there’s some quant in here stealth beeminding? Who knows.

Disclaimer: this is mostly a data curiosity - you will mostly need excel/python/R, not your brain, and if you’re unfamiliar with the topic it might not be that that funny anyway. :stuck_out_tongue:

In any case, here’s some background info and resources:

  • The sharpe ratio is a measure of how good an investment stretegy is. The more return, the better. The more standard deviation in the return (volatility), the worse. We want our investment strategy to make a lot of money, but we also want it to have as little ups and downs as possible. Usually, as the risk free rate, US government bonds are used. We can use the 10Y yield which at the time of writing is 2.53.
  • The SPY is an ETF that more or less tracks the overall US market. Instead of trying to pick your own stocks and actively manage your portfolio, you can just buy the SPY and hold it. This has not been so bad, historically.

“Consistently buy an S&P 500 low-cost index fund,” [Warren Buffet] told CNBC’s On The Money. “I think it’s the thing that makes the most sense practically all of the time.”

  • A free Quantopian account allows you to play with market data from the last couple of decades, including survivorship bias-free fundamental data on public companies. Here’s an example:

And here’s the “solution” and “explanation” using a quantopian research notebook. Disclaimer: I’m an amateur at this stuff. I find it interesting, but you might find better explanations somewhere else:

(the 252 instead of 365 is because there are 252 trading days in a year)

Apparently, the SPY has a sharpe of 4 year to date. A three month rolling sharpe chart shows a value over 6, which you can see on the same chart happened a handful of times in the last 20 years.


(image from https://twitter.com/iv_technicals/status/1115464135960084480, which is from the thread I took the puzzle from)

If you were running a quantitative algorithmic strategy, you would be really happy with a sharpe of 2 or 3. Of course, you’d also like that sharpe to be more consistent over time. In the above image you can see the rolling sharpe for the SPY going all over the place, so this high sharpe so far is just a funny coincidence showing how well the market has been doing.

If you’re a passive investor, you’re doing really, really well lately :smiley: In fact, the SPY is up 17.2% so far this year.

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I think there’s too many undefined terms in here for me to get started on this.

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Yeah, this is too practical for me! :slight_smile: But can I twist your arm to edit the question with links to things like the Sharpe ratio and a good source for the inputs, or include them directly?

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Sure! Will do tomorrow morning, along with spoiler solution, how to get lots of fun market data and an explanation on why it’s particularly funny.

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