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Learn Algorithmic Trading
book

Learn Algorithmic Trading

by Sebastien Donadio, Sourav Ghosh
November 2019
Beginner content levelBeginner
394 pages
10h 31m
English
Packt Publishing
Content preview from Learn Algorithmic Trading

PnL-sharpe-based risk allocation

PnL-sharpe-based risk allocation is a step ahead of PnL-based risk allocation. It uses the average PnLs normalized by historic standard deviation of returns to penalize trading strategies that have large PnL swings, also known as very high volatility returns.

This allocation method solves the problem of avoiding the construction of a high-volatility portfolio. But it still does not account for the correlation of returns between different trading strategies, which can still end up causing us to construct a portfolio where the individual trading strategies have good risk-adjusted PnLs but the portfolio as a whole is highly volatile.

The trading strategy with the best performance still makes the most money, ...

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Publisher Resources

ISBN: 9781789348347Supplemental Content