QQ 102 Introductory
Returns and risk
Course description
Every performance report uses the same few numbers: return, volatility, Sharpe ratio, drawdown. This course derives each one, shows the arithmetic, and then says plainly what it leaves out.
The aim is that when a tool prints a Sharpe ratio or a maximum drawdown, you know which choices were made to get it and what would change it. Those choices differ between tools, including ours.
What you will be able to do
- Compound returns and work out the gain needed to recover a loss
- Compute and annualise volatility and a Sharpe ratio
- Find the maximum drawdown of an equity series
- Size a position from a risk fraction, and compute a Kelly fraction
Syllabus
- Lesson 1Returns and compounding Why a 50% loss needs a 100% gain, and why quants use log returns.
- Lesson 2Volatility Standard deviation of returns, how it is annualised, and the assumption hidden in the square root.
- Lesson 3The Sharpe ratio Return per unit of risk. The most quoted number in trading, and the easiest to inflate.
- Lesson 4Drawdown How far the account has fallen from its peak, and why that decides whether people stay with a strategy.
- Lesson 5Position sizing and leverage How much to risk on one trade, and why the same signals can build one account and empty another.
- AssessmentProblem set Seven problems on compounding, volatility, Sharpe, drawdown, sizing and Kelly, with worked solutions.