High-Frequency Sharpe Ratio in R

Sharpe Ratio is a measure for calculating risk-adjusted return.

It is one of the best-known metrics for measuring investment strategy performance. It is specifically mean excess return divided by standard deviation of returns.

Sharpe ratio = (Mean portfolio return − Risk-free rate) / Standard deviation of portfolio return

In R language:

SR <- mean(Rt, na.rm=TRUE) / sd(Rt, na.rm=TRUE)

Generally, we want higher value of Sharpe Ratio as it is more attractive risk-adjusted value.

Notes : For a portfolio engaging in “zero risk” investment, such as the purchase of government bonds (with fixed-rate expected return or the risk-free rate), has a Sharpe ratio of exactly zero.