How to master your backtest-statistics - part I.

the most important KPIs explained in brief

The analysis can be divided into two areas on the one hand the Key Performance Metrics on the other hand the Graphic Analysis of the Backtest. Key Performance Metrics: The KPIs are divided into different areas. The following is a list with explanations:


  • Cumulative Return: 184.28%
  • CAGR%: 46.48%

The Cumulative Return is the aggregate amount that the Strategy has gained or lost over time, independent of the amount of time involved.

The compound annual growth rate (CAGR%) is the rate of return that would be required for an Strategyto grow from its beginning balance to its ending balance, assuming the profitswere reinvested at the end of each period of the Strategy’s life span.


The Sharpe ratio is used to help Traders understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Volatility is a measure of the price fluctuations of an asset or portfolio. A high Sharpe ratio is good when compared to similar strategy’s or funds with lower returns.

The Sortino ratio differs from the Sharpe ratioin that it only considers the standard deviation of the downside risk, ratherthan that of the entire (upside + downside) risk. Because the Sortino ratiofocuses only on the negative deviation of a strategy's returns from the mean,it is thought to give a better view of a portfolio's risk-adjusted performancesince positive volatility is a benefit.


A maximum drawdown is the maximum observed loss from a peak to a trough of a strategy, before a new peak is attained. Maximum drawdown is an indicator of downside risk over a specified time period.

The Calmar ratio uses a strategy’s maximum drawdown as its sole measure of risk, which makes it unique. This could also be considered one of its weaknesses.


Skewness (Skew) refers to a distortion or asymmetry that deviates from the symmetrical bell curve, or normal distribution, in a set of data. If the curve is shifted to the left or to the right, it is said to be skewed. For Traders, skewness isa better measure on which to base performance predictions.


Like skewness, Kurtosis is a statistical measure that is used to describe distribution. Whereas skewness differentiates extreme values in one versus the other tail, kurtosis measures extreme values in either tail. For Traders, high kurtosis of the return distribution implies the investor will experience occasional extreme returns (either positive or negative).

Return in Detail:

MTD: Month to Date return

3M: 3 Months return

6M: 6 Months return

YTD: Year to Date return

1Y/5Y/10Y/All-time: 1/5/10/ Year return

Expected Daily%/ Monthly%/ Yearly%: Daily%/ Monthly%/Yearly% return


Kelly criterion is currently used by Traders for risk and money management purposes, todetermine what percentage of their capital should be used in each trade tomaximize long-term growth.


Value at risk (VaR) is a statistic that quantifies the extent of possible financial losseswithin a firm, portfolio, or position over a specific time frame. This metriccan be computed in several ways, including the historical, variance-covariance,and Monte Carlo methods.



Joshua Denefleh

CQO & Co-Founder

Strong background in financial markets, graduate from University Mannheim in B.Sc. Economics, KIT Karlsruhe University. Experience in quantitative methods, programming algo /w python