rrr: Risk-Return Ratio
In stocks: Stock Market Analysis

Description Usage Arguments Value Author(s) References See Also Examples

Calculate ratio of investment return to investment risk based on a vector of prices or gains. The formula is growth rate / mdd, where growth rate is the growth of an investment over some time period and mdd is the maximum drawdown over that time period.

rrr(prices = NULL,
    gains = NULL,
    highs = NULL, lows = NULL,
    nas = FALSE)

`prices`	Numeric vector of investment prices (typically daily closing prices).
`gains`	Numeric vector of gains.
`highs`	Numeric vector of daily highs.
`lows`	Numeric vector of daily lows.
`nas`	If `TRUE`, function finds and removes any missing values (`NA`s) in `prices`. The default is `FALSE` to maximize speed for the usual case where there are no missing values.

Numeric value indicating the risk-return ratio.

Dane R. Van Domelen

Acknowledgment: This material is based upon work supported by the National Science Foundation Graduate Research Fellowship under Grant No. DGE-0940903.

gains.rate, prices.rate, mdd, sharpe.ratio, sortino.ratio

# Randomly generate daily stock gains over a 5-year period
set.seed(123)
stock.gains <- rnorm(252 * 5, 0.0005, 0.01)

# Convert to daily balances assuming an initial balance of $10,000
daily.balances <- balances(stock.gains + 1)

# Total return is about 1.23
daily.balances[length(daily.balances)] / daily.balances[1] - 1

# Maximum drawdown is about 0.19
mdd(daily.balances)

# Ratio of these two is about 6.48
(daily.balances[length(daily.balances)] / daily.balances[1] - 1) /
mdd(daily.balances)

# Easier to calculate using rrr function
rrr(daily.balances)