A per-trade edge with only 100 trades a year: annual Sharpe?

Question

A swing strategy earns an average of 0.30% per trade, with a standard deviation of 3.0% across trades, and it makes 100 independent trades per year. What annualized Sharpe ratio does this imply?

Accepted Answer

Build annual from per-trade. Over M independent trades, the annual Sharpe is the per-trade Sharpe times the square root of trades per year: SR{	ext{annual}} = \frac{m}{s}\sqrt{M} = s{	ext{trade}}\sqrt{M}. Plug in the numbers. The per-trade Sharpe is s{	ext{trade}} = 0.30\%/3.0\% = 0.10, and M = 100: SR{	ext{annual}} = 0.10 	imes \sqrt{100} = 0.10 	imes 10 = 1.0. Interpretation. Here the per-trade Sharpe (0.10) is the same as in a high-frequency example, but with only 100 trades a year the annual Sharpe is just 1.0, not 4.5. Compare directly: 2000 trades gave 4.5, while 100 trades give 1…

A per-trade edge with only 100 trades a year: annual Sharpe?

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