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Q - Any suggestions to improve PSR?

Hi,

I have tried several strategies and most of them seems to give good returns too. However I am unable to improve the PSR beyond 50%. Any suggestions to improve the PSR for alpha competition submission?

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Hello Guru,

A PSR of 50% means that there is a 50% change that the live-Sharpe is greater than 1.0. The calculation of PSR is as follows:

    def get_psr(self, benchmark = 0):

        skew = sps.skew(self.returns)

        kurtosis = sps.kurtosis(self.returns)

        n = len(self.returns)

        estimate_std = np.sqrt( (1 - (skew*self.sharpe_ratio) + ((kurtosis-1)/4)*self.sharpe_ratio) / (n - 1) )

        return round(sps.norm.cdf((self.sharpe_ratio - benchmark)/estimate_std),3)

Since the standard deviation (std) is contained in the numerator, decreasing the volatility is a way to improve PSR. Trading less volatile or risk-adjusted assets, trading less quantity, and shortening holding periods are ways to achieve low volatility.

Here’s a notebook explaining the use of PSR.

 

Best,

Yuxin Guan

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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.


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