Terms in the Rina Report

The following list describes the various terms found in the summary tab of Portfolio Evaluator.

Net profit

The total profit/loss realized by the system over the period traded.

Select Net Profit

This figure artificially adjusted the system’s results by removing all positive and negative outlier trades. The final figure presents a net profit devoid of aberration trades. Systems that are heavily dependent upon outlier trades will have dramatically different select net profit results than the systems that do not. A trade is considered to be an outlier if it’s profit/loss is greater than three standard deviations away from the average. A trader may also want to pay attention to whether or not the model is attempting to systematically capture returns from “outlier” or rare events when using this information to make value judgments about systems.

RINA Index

The RINA Index combines select net profit, time in the market and drawdown calculations into a single reward risk ratio. The larger the number, the more efficient the system. This performance measure is a trade-based statistic as opposed to equity based measures of performance such as the Sharpe Ratio.

Sharpe Ratio

Average annualized monthly returns (in %) minus the risk-free rate (interest rate setting) divided by the standard deviation of monthly returns. The higher the number, the greater the return in relation to variability of returns. Typically, Sharpe Ratios above one are considered to be indicative of good performance.

Return Retracement Ratio

This reward risk ratio is an alternative to the Sharpe Ratio that has been introduced by Jack Schwager. Unlike the Sharpe Ration it distinguishes between upside and downside return variability. The higher the ratio, the greater the return in relation to risk. For more complete information please refer to Jack Schwager’s book “Schwager on Futures: Technical Analysis”. (This formula is also found in the definitions under the Analysis Tab).

Return Retracement Ratio Calculation.

Return Retracement Ratio (RRR) represents the average annualized compounded return (R) divided by an average maximum retracement (AMR) measure:

RRR=R/AMR

AMR=1/n *,

Where n=number of months in survey period.

MRi = max (MRPPi, MRSLi),

Where

MRPPi=(PEi – Ei)/PEi,

MRSLi=(Ei – MEi)/Ei,

Where Ei = equity at the end of the month i,

PEi = peak month-end equity on or prior to month i,

MEi = minimum month-end equity on or subsequent to month i.

R is the average annual compounded return equals to

R= - 1,

Where S is starting equity, E is ending equity, N is the number of years

K-Ratio

Lars Kestner created a ratio that gauges performance by examining the consistency of returns with respect to time. Calculations for return and risk are derived from VAMI (value added monthly index). VAMI is a monthly plot of the progress of a hypothetical $1000 initial investment. Because the consistency of returns is examined with respect to time, the K–Ratio provides a good evaluation of equity performance.

Calculations for return and risk are derived from VAMI (value added monthly index). VAMI is a monthly plot of the progress of a hypothetical $1000 initial investment. Although the example below employs a base 10 log, using another log base will result in the same final value.

Running a linear regression on the log-VAMI curve reveals several details about performance. The slope of the regression line (the numerator of the K-Ratio) characterizes the return. The steeper the slope, the faster the money has been made. Risk in the K-ratio is measured by the standard error of the slope, a value calculated from the regression. The standard error measures the smoothness of the regression line of the log-VAMI. The higher the standard error the higher volatility of returns which is usually viewed as an equivalent of risk. The denominator of the K– Ratio is multiplied by the square root of observations to normalize the measure across different time frames.

K–Ratio = (Slope of Log VAMI Regression line) / ((Standard error of the slope )*(Number of period in the Log VAMI))

For more information please see a related article by Lars Kestner in Futures Magazine, January, 1996

Percent in the market

Divides the test period by total time in the market to produce the percentage of time spent in the market.

Adjusted Net Profit

The total adjusted gross profit minus adjusted gross loss experienced by the portfolio.

Adjusted Net Profit

The total adjusted gross profit minus adjusted gross loss experienced by the portfolio.

Adjusted Gross Loss

Total losing trades plus its square root multiplied by the system’s average losing trade dollar amount.

Select Net Profit

This figure artificially adjusted the portfolio’s results by removing all positive and negative outlier trades. A trade is considered to be an outlier if its profit/loss is greater than three standard deviations away from the average. Traders may want to note whether the trading model(s) systematically seek to capture profits from periodic outliers or rare events when evaluating portfolio performance.

Select Gross Profit

Total winning trades minus positive outliers.