# Key Concepts

## Glossary

### alpha

The quantity of an algorithm's returns that aren't explained by its underlying benchmark.

### annual standard deviation

A staticial measure that describes the dispersion of annual returns relative to the mean annual return. It's the square root of the annual variance.

### annual variance

A staticial measure that describes the dispersion of annual returns relative to the mean annual return.

### average loss

The average rate of return for unprofitable trades.

### average win

The average rate of return for profitable trades.

### beta

The scale and direction of an algorithm's returns relative to movements in the underlying benchmark.

### capacity

The maximum amount of money an algorithm can trade before its performance degrades from market impact.

### compounding annual return

The annual percentage return that would be required to grow a portfolio from its starting value to its ending value.

### drawdown

The largest peak to trough decline in an algorithm's equity curve.

### equity

The total portfolio value if all of the holdings were sold at current market rates.

### holdings

The absolute sum of the items in the portfolio.

### information ratio

The amount of excess return from the risk-free rate per unit of systematic risk.

The practice of making decisions using information that would not be available until some time in the future.

### loss rate

The proportion of trades that were not profitable.

### lowest capacity asset

The asset an algorithm traded that has the lowest capacity.

### net profit

(Percent) The rate of return across the entire trading period.

(Dollar-value) The dollar-value return across the entire trading period.

A trader who executes four or more day trades in the US Equity market within five business days.

### Probabilistic Sharpe ratio

The probability that the estimated Sharpe ratio of an algorithm is greater than a benchmark (1).

### profit-loss ratio

The ratio of the average win rate to the average loss rate.

### return

The rate of return across the entire trading period.

### Sharpe ratio

A measure of the risk-adjusted return, developed by William Sharpe.

### total fees

The total quantity of fees paid for all the transactions.

### total net profit

The rate of return across the entire trading period.

The number of orders that were filled or partially filled.

### tracking error

A measure of how closely a portfolio follows the index to which it is benchmarked. A tracking error of 0 is a perfect match.

### Treynor ratio

A measurement of the returns earned in an algorithm in excess of the risk-free rate per unit of benchmark risk, developed by Jack Treynor.

### unrealized

The amount of profit a portfolio would capture if it liquidated all open positions and paid the fees for transacting and crossing the spread.

### volume

The total value of assets traded for all of an algorithm's transactions.

### win rate

The proportion of trades that were profitable.

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