@railpath/finance-toolkit/dist/risk/calculateSharpeRatio.js

Production-ready finance library for portfolio construction, risk analytics, quantitative metrics, and ML-based regime detection

"use strict";
Object.defineProperty(exports, "__esModule", { value: true });
exports.calculateSharpeRatio = calculateSharpeRatio;
const SharpeRatioOptionsSchema_1 = require("../schemas/SharpeRatioOptionsSchema");
const SharpeRatioResultSchema_1 = require("../schemas/SharpeRatioResultSchema");
const calculateStandardDeviation_1 = require("./calculateStandardDeviation");
/**
 * Calculate Sharpe Ratio
 *
 * Sharpe = (Mean Return - Risk-Free Rate) / StdDev
 *
 * @param options - Returns, risk-free rate, annualization factor
 * @returns Sharpe Ratio and related metrics
 */
function calculateSharpeRatio(options) {
    const { returns, riskFreeRate, annualizationFactor } = SharpeRatioOptionsSchema_1.SharpeRatioOptionsSchema.parse(options);
    // Mean return
    const meanReturn = returns.reduce((sum, r) => sum + r, 0) / returns.length;
    // Annualized return
    const annualizedReturn = meanReturn * annualizationFactor;
    // Standard deviation
    const stdDev = (0, calculateStandardDeviation_1.calculateStandardDeviation)(returns);
    // Annualized volatility
    const annualizedVolatility = stdDev * Math.sqrt(annualizationFactor);
    // Excess return
    const excessReturn = annualizedReturn - riskFreeRate;
    // Sharpe Ratio
    const sharpeRatio = annualizedVolatility !== 0 ? excessReturn / annualizedVolatility : 0;
    return SharpeRatioResultSchema_1.SharpeRatioResultSchema.parse({
        sharpeRatio,
        annualizedReturn,
        annualizedVolatility,
        excessReturn,
    });
}