Annualizing Sharpe Ratios from High-Frequency Returns

Summary

The document asks how to annualize a Sharpe ratio for an intraday strategy evaluated with prices sampled every ten seconds. The trader describes computing each interval return, summing those returns to form a daily result, and then applying the usual square-root-of-trading-days annualization. A very large illustrative one-day return appears inconsistent with the resulting Sharpe estimate, prompting concern about the calculation.

The key issue is that Sharpe annualization depends on the mean and volatility of returns measured at a consistent frequency, and the familiar square-root scaling requires assumptions about the return process. Summing simple interval returns is also not generally equivalent to compounding them into a daily portfolio return. The excerpt contains only the question and an illustrative random-data outcome, not an answer or validated performance evidence, so it does not settle a suitable estimator for dependent high-frequency returns.

Key ideas

• A Sharpe ratio must use returns and volatility measured at a consistent sampling frequency.
• The usual square-root-of-time annualization relies on assumptions about return dependence and scaling.
• Summing interval simple returns does not generally produce the compounded daily return.
• The document provides a question and illustration rather than a resolved method or performance result.

Tags

# Sharpe ratio from second returns? HFT


# Sharpe ratio from second returns? HFT












I have an intraday trading strategy so I take several positions each day. I have prices for each stock, with a 10 second resolution. So the data looks like this:

```
09:00:00   $100
09:00:10   $101
09:00:20   $99
09:00:30   $97
...
```

So I can calculate the return for each 10s interval. Then I sum the returns up, to get the total return for that day. My question is: how do I get annualized Sharpe ratio from these 10s returns?

Right now I am experimenting with one days worth of data. At the end of the day, I get a return of 183% (just experimenting with some random data and random trades). If I annualise my returns by multiplying with sqrt(252) I get a Sharpe of 0.76. That does not sound right? If I get a daily return of 183% then the annualized Sharpe should be much higher than 0.76? So what I am doing wrong? I am following this: How to calculate Sharpe Ratio from $ returns?

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