mev-toolkit/MEV_and_trading/strategy_metrics

trading strategy metrics

tl; dr

• metrics to optimize when developing trading algorithms

---

net profit and loss (net PnL)

• how much money an algorithm makes and loses over a period, minus trading free.

---

alpha and beta

• alpha: how much better, in terms of profit, is the strategy compared to an alternative risk-free investment.
• beta: how volatile the strategy is compared to the market.

---

sharpe ratio

• measure the excess return per unit of risk you are taking.
• it's the return on capital over the standard deviation adjusted for risk.

---

maximum drawdown

• maximum difference between a local maximum and the subsequent local minimum as a measure of risk.

---

value at risk (VaR)

• risk metric that qualifies how much capital is at a loss over a given time frame with some probability (assuming normal market conditions).

---