Risk and performance metrics
Return on its own says little. These metrics measure how much risk was taken to earn it, how bad the worst stretch was, and whether a result came from many good days or a lucky few. You will see most of them in Automate Fundamentals backtests.
Sharpe ratio
What the Sharpe ratio measures, how to calculate it from returns and volatility, what counts as a good Sharpe ratio, and where it misleads.
Sortino ratio
How the Sortino ratio improves on the Sharpe ratio by counting only downside volatility, how to calculate it, and when to prefer it.
Calmar ratio
The Calmar ratio compares annual return with the worst drawdown. How to calculate it, what a good value is, and why drawdown-based risk matters.
Maximum drawdown
What maximum drawdown is, how to calculate it, why losses need bigger gains to recover, and historical drawdowns for stocks and leveraged funds.
Standard deviation and volatility
What volatility means in investing, how standard deviation of returns is calculated and annualised, and typical volatility for stocks, bonds and leveraged funds.
CAGR (compound annual growth rate)
What CAGR means, the formula for compound annual growth rate, a worked example, and why it differs from the average annual return.
Win rate and payoff ratio
What win rate means for a trading or investing strategy, why a high win rate can still lose money, and how win rate and payoff ratio combine into expectancy.
Skewness of returns
What skewness means for investment returns, how positive and negative skew differ, and why negatively skewed strategies hide their risk.
Kurtosis and fat tails
What kurtosis measures, why stock returns have fat tails, what excess kurtosis means, and why extreme days happen far more often than a bell curve predicts.
Tail ratio
The tail ratio compares a strategy's best days with its worst days. How it is calculated from percentiles and what values above or below 1 tell you.
Herfindahl index (concentration)
How the Herfindahl-Hirschman index measures portfolio concentration, how to calculate it from weights, and the effective number of holdings it implies.
Portfolio turnover
What portfolio turnover means, how to calculate it, and how high turnover raises trading costs and taxes and quietly reduces a strategy's real returns.