How to Calculate Strategy Returns, Risk, Trading Activity, and Exposure

Summary

This reference describes metrics for evaluating trading strategies from records of equity, fees, trades, trading volume and value, positions, prices, and timestamps. It covers cumulative and annualized returns, Sharpe and Sortino ratios, return relative to maximum drawdown or trading value, trade counts, turnover, position value, and leverage. Several metrics can be expressed relative to allocated capital, while daily figures divide totals by the elapsed number of days.

The formulas make clear which inputs each measure uses. For example, returns use equity after fees, drawdown compares equity with its running peak, and leverage relates maximum position value to capital. The document is implementation-oriented and provides no empirical comparison, benchmark, or trading results. Annualization depends on the chosen trading-day convention, and the Sharpe calculation also scales with the number of observations per day, so sampling frequency affects the result. Users should check assumptions, data quality, and edge cases such as zero denominators before interpreting the metrics.

Key ideas

• Strategy metrics can summarize returns, drawdowns, risk-adjusted performance, trading activity, exposure, and leverage.
• Returns and drawdowns can be reported in raw units or scaled by allocated capital.
• Annualized return, Sharpe, and Sortino calculations depend on the trading-day convention and sampling frequency.
• Trading value and volume describe turnover, while position value and leverage describe open exposure.
• The reference gives formulas but no evidence that a strategy using these metrics will be profitable.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.