Building a drawdown and rolling risk analysis
A focus only on returns without considering risk is like driving a fast car at high speeds without a seatbelt—it may work for a while, but the consequences can be catastrophic. Risk metrics provide the analytical framework to quantify and manage uncertainty, which lets traders make more informed decisions. These metrics offer insights into the potential volatility, drawdown, and other adverse conditions a strategy might encounter. By incorporating risk analytics into the trading process, traders can better assess the trade-offs between risk and return, optimize their portfolios for maximum risk-adjusted performance, and establish safeguards to mitigate potential losses.
Pyfolio offers several risk metrics to help maintain control of algorithmic trading systems. We’ll look at several in this recipe.
Getting ready…
We assume the steps in the Preparing Zipline Reloaded backtest results for Pyfolio Reloaded recipe...
