Get serious about measuring your performance: Sharpe Ratio
 

In finance, the Sharpe Ratio can be used to measure the performance of an investment strategy. It is defined as the return generated by your investment(s) above the riskless rate (say the 30yr treasury bond) divided by the standard deviation of your investment(s).

This measure is useful because it is risk-adjusted; a riskier asset must perform better than a less risky one to have the same Sharpe ratio.

After reviewing this thread, its hard to ignore how important both increasing your winrate and decreasing your standard deviation are to anyone who relies on poker for a "steady" income. Long losing or even break even streaks can be hell both financially and psychologically.

In measuring your poker success, you should start thinking not only in terms of winrates in BB/100, but also in terms of your poker Sharpe Ratio, which is:

Poker Sharpe Ratio = Winrate in BB/100 / Standard deviation in BB/100

Interestingly, a very good hedge fund might have a Sharpe ratio of 10. In NL poker, the best one might hope for is probably around 0.2.

Re: Get serious about measuring your performance: Sharpe Ratio
 

What are we using for our riskless return?

Re: Get serious about measuring your performance: Sharpe Ratio
 

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What are we using for our riskless return?

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Up for debate, but as I wrote it I used 0%. It probably doesn't matter, since a typical bond return of 5% or so is totally negligible to any winning player.

Re: Get serious about measuring your performance: Sharpe Ratio
 

In poker, probably 0 since there isn't a poker game with 0 standard deviation.

Blackjack players use a calculation like the Sharpe ratio to compute the attractiveness of playing different games.

Is the OP saying that the excess return for these cats is 10 times the standard deviation? If so, wow, that would lead to huge quantities of money in no time. over what time period is that measured? 100 hands of poker is only an hour or less [img]/images/graemlins/grin.gif[/img]

Re: Get serious about measuring your performance: Sharpe Ratio
 

I think that you simply things to much. Required bankroll should count as the investment being made as that is the amout of money that could be placed risk-free.

Here is my take on things.

S=(R-Rf)/std

R=((BB/100)*(hands_p_year/100))/(Bankroll_in_BB)
Rf=30 year treasury= 4.5%
std=standard deviation of the return for the whole year.

An example:
Someone averages 10BB/100 with a std of 120BB/100 and keeps a roll of 100 (100 BB) buyins, and plays 300'000 hands a year. With 300'000 hands the std should be around 6500BB divided by the expected return in BB .

S=(10*3000/10000-0.045)/(6500/30000)=13.6

Which I'm guessing will be very hard to beat using other forms of investing.

Re: Get serious about measuring your performance: Sharpe Ratio
 

Risk free rate doesn't matter here, as long as you use the same input for everyone. Sharpe alone doesn't make much sense only when compared to the population you are comparing to. If everyone uses 0 as an implied RF rate for this, the ratio can be used to determine who are the more volatile, less risky, etc players within the same winrate range. Two players can both be running at 10bb/100, but one may be much less risky. I also think this would be a good measure of if a player is 'running hot' or not.. the same two players one with a much lower Sharpe may have just won some big flips and gotten there.

I had always wished that Poker Tracker would incorporate standard deviation in their calcs. I don't think they have it there.

Re: Get serious about measuring your performance: Sharpe Ratio
 

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I had always wished that Poker Tracker would incorporate standard deviation in their calcs. I don't think they have it there.

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They do, although I have heard some debate here (by Pokey, etc.) about whether it is calculated properly. Go to Session Notes --> More Detail.

Re: Get serious about measuring your performance: Sharpe Ratio
 

Shouldn't risk free rate be the rate of [non-poker] investment return you could earn on your poker bankroll? I think you should set this as 5% at least, since that is the rate you can get on a basic savings account.

Re: Get serious about measuring your performance: Sharpe Ratio
 

Rate doesn't matter, it only matters in an environment with changing interest rates when your choice is either invest risk-free or invest with manager x.. you can apply the same philosphy, in some way, to poker, but I think the measure is better utilized to simply capture volatility and risk for a given player and given style as compared to his peers. In finance, you need to back check this calc across different periods which all have different risk free rates so you need to be adjusting the figures to compare apples and apples. In this case, for poker, I think it is best used simply as a matter of volatility given the same profit level/winrate.

CT, thanks - I will check it out.

Re: Get serious about measuring your performance: Sharpe Ratio
 

bump for evening crowd.

Also, it would be intersting to quantify how likely a stretch of X break-even hands is for a Sharpe ratio of Y. This would require some extensive but straightforward simulations.

Re: Get serious about measuring your performance: Sharpe Ratio
 

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After reviewing this thread, its hard to ignore how important both increasing your winrate and decreasing your standard deviation are to anyone who relies on poker for a "steady" income

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There are no reliable thigns you can do to lower your std without your game deteriorating.
I believe that idea is nonsense. Just concentrate on playing well.

Re: Get serious about measuring your performance: Sharpe Ratio
 

CT,

Just learn about Sharpe Ratio in your finance class? You're about the 300th person to make this association. And to answer your evening question crowd question, that's a straightforward probability question as long as you're assuming that your Sharpe ratio is constant throughout the entire time. No simulations needed.

Re: Get serious about measuring your performance: Sharpe Ratio
 

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After reviewing this thread, its hard to ignore how important both increasing your winrate and decreasing your standard deviation are to anyone who relies on poker for a "steady" income

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There are no reliable thigns you can do to lower your std without your game deteriorating.
I believe that idea is nonsense. Just concentrate on playing well.

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That's simply not true. Identifying and eliminating instances that are very high variance and only marginally plus EV will increase your Sharpe Ratio.

Re: Get serious about measuring your performance: Sharpe Ratio
 

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That's simply not true. Identifying and eliminating instances that are very high variance and only marginally plus EV will increase your Sharpe Ratio.

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What I am saying is that eliminating such instances is both :
a)difficult
b)very bad for your resulsts as such plays usually generates (beside small profit) a lot of action and good image

I think making adjustment to your play to lower std costs too much.
Also instances when you are in "marginally +EV situation with high variance" are very rare and wont help you lower std by much.

Re: Get serious about measuring your performance: Sharpe Ratio
 

Man...that's exactly what I was just looking for.. a Sharpe...those things write awesome on CDs

Re: Get serious about measuring your performance: Sharpe Ratio
 

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After reviewing this thread, its hard to ignore how important both increasing your winrate and decreasing your standard deviation are to anyone who relies on poker for a "steady" income

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There are no reliable thigns you can do to lower your std without your game deteriorating.
I believe that idea is nonsense. Just concentrate on playing well.

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this assumes that std is directly proportional to true winrate? i would expect the relationship to be more of an inverse parabola.

Re: Get serious about measuring your performance: Sharpe Ratio
 

punter is right

Re: Get serious about measuring your performance: Sharpe Ratio
 

also, the association between downswings and ratio of winrate and SD is pretty obvious and has been talked about on here a lot. this metric with regard to poker is pretty worthless. comparing poker to a hedge fund is just silly

Re: Get serious about measuring your performance: Sharpe Ratio
 

This ratio is basically 2 variables already measured by everyone, plus one that has no relevance.

Re: Get serious about measuring your performance: Sharpe Ratio
 

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punter is right

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I can't see how SD can be linearly correlated to WR; after all, SD is linerar to VPIP, and you can't increase your WR by just adding more & more hands until you get to 100%. But I'm new to MSNL, so I'll go do some forum searching...

Re: Get serious about measuring your performance: Sharpe Ratio
 

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I think making adjustment to your play to lower std costs too much.

Also instances when you are in "marginally +EV situation with high variance" are very rare and wont help you lower std by much.

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Think more in terms of game selection, general strategy, and where on the ladder of limits you decide to play as things you might adjust in order to maximize both your winrate and Sharpe ratio.

For example, if you rely on poker for your income, and have the following win rates at 3/6 and 5/10,

3/6: 8BB/100 +- 35BB/100
5/10: 6BB/100 +- 60BB/100

its not obvious which game you should be playing, even though your hourly rate at 5/10 is about 25% greater.

The same sort of argument could be made for LAG vs TAG styles, general 3betting ranges, etc. If LAG is just as profitable as TAG, but can lower your STD, then you should open up and play LAG.

All I'm saying is if we think about trying to maximize not just winrate but Sharpe as well, it might make our lives easier.

Re: Get serious about measuring your performance: Sharpe Ratio
 

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After reviewing this thread, its hard to ignore how important both increasing your winrate and decreasing your standard deviation are to anyone who relies on poker for a "steady" income

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There are no reliable thigns you can do to lower your std without your game deteriorating.
I believe that idea is nonsense. Just concentrate on playing well.

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I agree with this, 2+2ers in general are far too worried about decreasing variance. The exception is changing the game you play, e.g. playing NL instead of PLO, playing SNGs instead of MTTs, playing a capped game instead of a bigger uncapped game with smaller blinds.