Performance Metrics

A Sharpe ratio above 1 is generally considered good, above 2 very good, and above 3 excellent. Many quantitative funds discard strategies below 2. The figure is only meaningful net of fees, over a statistically significant period, and ideally corrected for backtest overfitting with the Deflated Sharpe Ratio.

Sharpe = (R − Rf) / σ, where R is the portfolio return, Rf the risk-free rate, and σ the standard deviation of returns. AuditZK computes it on daily total equity and annualizes it, inside the AMD SEV-SNP enclave.

Sharpe penalizes all volatility; Sortino penalizes only downside (harmful) volatility by using downside deviation. Sortino is more representative for asymmetric or option-like return profiles where upside swings should not count as risk.

Lower is better, but there is no universal threshold. It must be judged against the strategy's returns (see the Calmar ratio) and your risk tolerance. A 50% drawdown requires a 100% gain just to recover, which is why deep drawdowns matter more than they first appear.

VaR estimates the maximum expected loss at a given confidence level over a horizon. A 95% one-day VaR of 3% means that, on 95% of days, you would not expect to lose more than 3%. It is a regulatory standard but says nothing about the size of losses in the worst 5%.