stocks (version 1.1.1)

rrr: Risk-Return Ratio

Description

Calculate ratio if investment return to investment risk based on a vector of prices or gains. The formula is: growth rate / mdd. Here growth rate is the growth of a stock or investment of some time period, and mdd is the maximum drawdown over that time period. User can specify prices or gains.

Usage

rrr(prices = NULL, gains = NULL)

Arguments

prices

Numeric vector of stock prices (typically daily closing prices).

gains

Numeric vector of gains.

Value

Numeric value indicating the risk-return ratio.

Details

NA

References

Acknowledgment: This material is based upon work supported by the National Science Foundation Graduate Research Fellowship under Grant No. DGE-0940903.

See Also

sharpe, sortino, mdd

Examples

# Randomly generate daily stock gains over a 5-year period
set.seed(123)
stock.gains <- rnorm(251*5, 0.0005, 0.01)

# Convert to daily balances assuming an initial balance of $10,000
daily.balances <- balances(stock.gains + 1)

# Total return is about 1.23
daily.balances[length(daily.balances)] / daily.balances[1] - 1

# Maximum drawdown is about 0.19
mdd(daily.balances)

# Ratio of these two is about 6.48
(daily.balances[length(daily.balances)] / daily.balances[1] - 1) / mdd(daily.balances)

# Easier to calculate using rrr function
rrr(daily.balances)