StockTrak Sharpe Ratio Update

The Sharpe Ratio has been a staple of StockTrak for years, where professors could include Sharpe Ratio calculations and rankings on all of their classes. Over the summer of 2021, our accounting system has updated the Sharpe Ratio calculation to improve its accuracy for all classes.

What Has Changed

The previous Sharpe Ratio on StockTrak was a “raw” ratio, based on each user’s daily portfolio returns. This had two weaknesses:

  1. This included ALL days, including weekend (non-trading) days. This meant the previous Sharpe Ratio calculation under-stated portfolio variance, since days with no change were included in the calculations.
  2. If any corrections to a student’s account were made, the historical values were not updated in the Sharpe Ratio calculation. This meant in the rare case where a correction needed to be made to a student’s account, their Sharpe Ratio would continue to be inaccurate.

Both of these cases are now addressed in the new calculation.

Future Updates

In addition to our updated calculation for the Sharpe Ratio, we also plan to retire our former Alpha/Beta calculation and add in additional calculations for Jensen’s Alpha and Treynor Ratios for the Fall 2021 semester. Both of these calculations will be based on the beta of the user’s portfolio itself, rather than the beta of a student’s individual holdings. This change is driven both to include additional measures of portfolio performance, but also because our data feeds typically would only include actual beta values for US stocks. As most classes allow multiple security types, as well as equities from multiple countries, transitioning to the beta of the portfolio itself allows for much greater consistency and tractability for students wishing to verify their ratio calculations.

We expect both the Jensen’s Alpha and Treynor Ratios to be available for all classes by mid-August. If you create your class beforehand, you will have the option to add these ranking types to your class as soon as they are available.

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