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Sharpe Ratio is a very popular method of evaluating the risk v/s return performance of a portfolio. The formula used in Canopy is
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Currently (as of August 2018) Canopy uses a Risk Free Rate of 2.00% (which is approximately the 10yr US Treasure rate over the last 1 year).
Unless otherwise specified,
- Daily Returns is (Change in Value / Yesterday's Value) and not Log(P2/P1)
- All calculations ignore any impact of leverage and cost of financing (i.e. interest paid on loans). This means that Canopy calculates Sharpe Ratios assuming all positions are unleveraged
In case you need the calculations to be done differently please contact customer support and we will be able to help you.
Value at Risk (VaR)
Value at Risk (VaR) is a risk measure especially popular with Financial Institutions. It uses a statistical method to estimate the change in USD (or other base currency) value of a portfolio / strategy or securities i.e. value at risk. In Canopy we estimate the 1 day VaR with a 95% confidence level. The formula used is
where
1.65 = Z-Score for 95% percentile one-sided confidence interval
Daily Returns = Change in Value / Yesterday's Value (to eliminate the effect of any random data in the result we ignore any daily return more than 25%)
Portfolio Value = Most recent closing value of securities in the portfolio (we exclude cash in the portfolio from this calculation)
Volatility
Volatility is a measure of variation of a trading price series over time. It can be calculated on individual securities or indices or on entire strategies. Canopy uses the methodology suggested by Motley Fool (and therefore we use Standard Deviation of Daily Returns and not log of P2/P1).