Why Sharpe and Sortino Ratios Change with Return Frequency

Summary

The document raises a backtesting question: why Sharpe and Sortino ratios differ when calculated from daily, weekly, or monthly portfolio returns, and whether one interval is the industry standard. It reports that both measures rise as the return interval becomes longer in the example, with a particularly large increase in the monthly Sortino ratio. The author also mentions that returns are extremely volatile and asks whether that could explain the discrepancy.

The excerpt contains no answers or calculations diagnosing the result, so it does not establish whether the reported differences are expected or identify a preferred sampling frequency. Its practical lesson is that risk metrics depend on how returns are sampled and that comparisons require consistent choices for return frequency and risk-free-rate treatment. The figures are specific to one backtest and period; the document provides too little information about the calculation method, return distribution, or annualization to determine whether the implementation is correct.

Key ideas

• The example reports different Sharpe and Sortino ratios for daily, weekly, and monthly returns.
• Both reported ratios increase as the sampling interval lengthens in this example.
• The author identifies high return volatility as a possible factor but does not confirm its role.
• The document supplies no answer establishing a gold-standard frequency or diagnosing calculation errors.
• Comparisons require consistent return sampling and treatment of the risk-free rate.

Tags

# Does the interval of a portfolio's returns affect Sharpe and Sortino? If so, what's the gold-standard interval?


# Does the interval of a portfolio's returns affect Sharpe and Sortino? If so, what's the gold-standard interval?












I'm currently creating a backtesting script and I've got to the point of calculating risk metrics.

It seems like the interval (daily, weekly, or monthly) I use for returns heavily changes the outputted Sharpe and Sortino ratios.

I have date for daily returns between `2018-08-31` and `2021-08-31`.

The risk-free rate I've used is `1.36%` annually.

#### Daily

Sharpe: `0.14` Sortino: `0.30`

#### Weekly

Sharpe: `0.26` Sortino: `0.95`

#### Monthly

Sharpe: `0.53` Sortino: `4.79`

If this difference is to be expected, what's the gold-standard interval in the industry?

If this difference isn't expected, what errors may have occurred to cause it?

NB: The returns are extremely volatile and I'm guessing this may be the root cause.

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