RollingSharpe Node
Rolling risk-adjusted return measurement
Overview
Rolling Sharpe Ratio measures excess return per unit of volatility in rolling windows. It shows whether strategy performance is consistent or declining. Rising rolling Sharpe = improving performance. Declining rolling Sharpe = strategy degradation warning. Sharpe > 1.0 is good; > 2.0 is excellent.
Unlike single Sharpe (backward looking one metric), rolling Sharpe shows the performance trend. A strategy with declining rolling Sharpe despite positive cumulative Sharpe needs investigation: early periods profited, but recent periods struggle.
Formula & Calculation
Annualized: Multiply by sqrt(252)
Track over time to monitor consistency
Parameters
| Parameter | Default | Description |
|---|---|---|
| period | 252 | Rolling window (annual) |
| risk_free | 4% | Risk-free rate (annual) |
Common Use Cases
1. Performance Monitoring
Declining rolling Sharpe = strategy needs fixing. Track quarterly: If rolling Sharpe falls 1.5→1.0→0.5, strategy is degrading.
2. Strategy Persistence
High rolling Sharpe consistency = durable edge. Volatile rolling Sharpe (1.5, 0.2, 2.0) = luck, not skill. Choose stable strategies.
3. Allocation Rebalancing
Allocate capital to strategies with rising rolling Sharpe. Reduce to those with declining Sharpe. Dynamic allocation based on performance trends.
4. Regime Switching
Rolling Sharpe inflection = regime change. When rolling Sharpe crosses 1.0, switch strategy.
Advantages & Limitations
Advantages
- Standard industry metric
- Shows trend in performance
- Easy to interpret
- Enables comparison
Limitations
- Penalizes upside volatility
- Sensitive to outliers
- Window-dependent results
- Assumes normality