Why Is the Sharpe Ratio Our Primary Benchmark?
At Bitronix, we prioritize risk-adjusted return. The Sharpe Ratio β the ratio of average return to the standard deviation (volatility) of that return β is our primary metric for strategy quality.
A higher Sharpe Ratio signifies:
A smoother growth curve for your investments.
A higher statistical probability of achieving positive returns over any given time period.
Probability and the Sharpe Ratio
For a strategy with a Sharpe Ratio of 1, the probability of positive annual returns is approximately 84%. Over three years, this probability increases to ~96%. For comparison: the traditional "Buy & Hold" strategy for the S&P 500 index has demonstrated a Sharpe Ratio of approximately 0.3β0.4 over decades.
From Theory to Portfolio Mathematics
The strength of our uncorrelated ensemble is mathematically proven. The aggregate Sharpe ratio (S) for N strategies is calculated using the formula:
Where Ε is average Sharpe ratio of individual strategies, and Δ is their average correlation coefficient.
With N=1000 and Δ =0,01, the portfolio's Sharpe ratio is multiplied. This allows us to construct a portfolio with a high Sharpe ratio from many components, each of which has a modest individual metric.
