All language subtitles for 2. Sortino ratio computation

Hi, everyone, and welcome in this new edition.

In this video, we're going to talk about the Sortino ratio.

The Sortino ratio is the statistic similar to the Sahpra show with the same interpretation.

However, the only difference between the two statistics is the computation of the volatility, because

in the sharp pressure, we take all the volatility and in the sortino ratio, we take only the downward

volatility because if you want to invest on Easter, for example.

If there are a big increase of a stroke, you don't really care about it because you will earn a lot

of money.

But if you lose a lot of money, you will care about it.

So it is with this mine that the sortino ratio has been created.

When you compute associate in a ratio, there are three cases.

First, your sortino ratio is below zero, so it means that your strategy is less profitable.

The second case is when the Sortino ratio is below one, it means that your strategy is profitable,

but the risk of your strategy is higher than the return and when the sortino ratio is higher than one.

It is a very good strategy because the risk is lower than the returns.

So in all this chapter, we are going to use the Google stock price to illustrate each indicators.

So first, we need to import some data using where he finance.

Then I will compute the return of Google Earth, because in backtesting function, usually we take the

return of this strategy.

So we put in percentage with the rules on the change function, and I dropped the missing value.

Then.

I change the name of this series in return.

I just want to highlight a specific points of the pundits library that say we can only have one column,

so when you want to change this name, you don't need to put a list of columns just a string, because

implicitly pundits know that there is only one column instead of.

If you want to change the name of columns that are framed because there can be multiple columns, then

we're going to compute also pressure.

First, we need the mean of this Syrian.

Then we need the darn world volatility, so we compute the standard deviation of all the value below

zero.

It means that we compute the volatility of all the negative returns.

So to have the negative return, we just tend to ponder that we want all the value of returns Siri below

zero

and then

I can create or sortino ratio.

And I can print it.

Musing if it's true.

So I want to run the value of this sortino ratio with three decimal so.

But now, as we can see, we have as fortunate or of none as we can see, we have a sortino ratio around

zero point one.

But but as a result, we need a result like one point thirty two or twenty three.

I don't remember like the previous results.

It is because we don't have annualized all indicators and it is so essential.

That is why I only want to see this error because if you don't analyze all of your indicators, you

will have some issues when you want to interpret it, and you will have some difficulties to compare

different strategies.

Because if one strategy trade with a daily interval, for example, and if a never train with a monthly

interval, you will have.

But Sortino ratio daily for once, what is she and a monthly sortino ratio for another, so you really

cannot compare the two strategic together.

So to fix this issue, you need to analyze also generation.

And to do it, we need to multiply it by 252 because it is the number of open day in the year by the

square root of two hundred fifty two.

It is because to analyze the meaning, you need to multiply by two hundred fifty two and to analyze

the volatility, we need to multiply that by the square root of two hundred fifty two.

Because the volatility is the square root of the variance.

And now we have the annualized Sortino ratio of Google, so we can see that taking into account the

volatility of this asset, this asset had a very good returns.