Sharpe Ratio Screener

The Sharpe Ratio Screener indicator is a risk-adjusted return analysis tool that allows traders to assess the efficiency of multiple assets simultaneously.

Usage

The Usage section describes how the script can be used to evaluate portfolio assets or individual tickers based on their risk-adjusted performance. Traders can input a custom list of symbols in the settings to track their performance in a consolidated table.

The tool categorizes assets into four primary valuation zones based on their annualized Sharpe ratio:

• Overvalued: Triggered when the ratio exceeds the "Over Valued" threshold (default 5).
• Undervalued: Occurs when the ratio is between the "Under Valued" and "Critically Under Valued" thresholds.
• Critically Undervalued: Occurs when the ratio falls below the "Critically Under Valued" threshold (default -3).
• Neutral: Applied when the ratio does not meet the criteria for other specific zones.

A color-coded table displays the symbol, current price, and Sharpe ratio, with background colors shifting to red, green, or blue to reflect the current valuation state. This allows for quick identification of assets that are potentially overextended or presenting value opportunities.

Details

The script calculates the Sharpe ratio by determining the daily returns of an asset over a set lookback period (defaulting to 180 days). It then computes the mean and standard deviation of these returns to derive the ratio. To provide a standardized metric, the ratio is annualized by multiplying the mean by 365 and dividing it by the volatility (standard deviation) adjusted by the square root of the lookback period.

The calculation also incorporates a risk-free rate, representing the return of a safe asset like government bonds, ensuring that the metric only reflects returns generated in excess of "safe" investments. This script was adapted into a screener format based on original concepts by tim_amblard.

Settings

The settings are categorized to control the mathematical model and visual output:

• Risk-Free Rate: The annualized rate (in decimal format) used to subtract from the mean returns.
• Lookback Period (180 Days): The number of days used to calculate the mean and standard deviation.
• Over Valued: The upper threshold for the overvaluation zone.
• Under Valued: The upper threshold for the undervalued zone.
• Critically Under Valued: The lower threshold for the critically undervalued zone.
• Table Position: Adjusts the location of the screener table on the chart.
• Symbol List: A comma-separated list of tickers to be tracked by the screener.

FAQ

How do I use the Sharpe Ratio Screener?

Simply add the indicator to your daily chart and enter the symbols you wish to track in the "Symbol List" input field within the settings menu.

Why does the indicator show a warning on lower timeframes?

The Sharpe ratio calculation in this script is specifically designed for daily returns and 365-day annualization; using lower timeframes will produce inaccurate results.

Where can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.