Back

Tracking error is non-zero even without trading

Hi,

I've attached a backtest where I don't make any trades, and am wondering why tracking error and information ratio, are both non-zero. If I have not made any trades then I believe these values should both be zero as there has been no trading activity.

I assume what may be happening is that even though portfolio return may be zero, we're still able to calculate benchmark return, and consequently are still able to calculate both tracking error and information ratio.

I'm not sure if this is the intended behaviour, but would it be possible to clarify if I may be missing something?

Thanks!

Update Backtest








0

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


Hey Serena,

You're absolutely correct! Since the algorithm is not placing any trades, its returns over the backtesting period are 0%. While the benchmark produces non-zero returns over the same period. This is what produces non-zero the tracking error and IR.

Best
Rahul 

1

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


Thanks for the clarification, Rahul! I was expecting that these values should be forced to be 0 if there are no trades, but this definitely makes sense as it follows the equation.

0

Update Backtest





0

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


Loading...

This discussion is closed