How To Measure Skewness Of A Trading Strategy Using Python – (Code, Setup, Example Analysis)
Many metrics and statistics are used to quantify a trading strategy’s performance. CAGR, standard deviation, Sharpe Ratio, and maximum drawdown are among the most popular indicators. However, today, we will look at one that is not used very often: How to measure the skewness of a trading strategy using Python.
The skewness is a measure of the symmetry of a distribution. Usually, it is the distribution of daily returns of the strategy. The skewness signals whether the distribution is normal or shifted to the right or left. But what does this really mean, and how is it calculated?
In this article, we will look at the skewness, the formula to calculate it, and how to do it using Python.
Related reading: – Are you looking for other Python trading systems? (We have plenty more)
What is skewness?
Skewness is a measure of the symmetry of a distribution. If the distribution is normal, it is said that it has no skewness, as it is symmetrical on both sides. However, if the bell curve is shifted to the left or the right, it is said to be skewed.
There are several different types of distributions and skews. On the one hand, if the distribution is shifted to the left, it is negatively skewed. On the other hand, if the distribution is shifted to the right, it is a positively skewed distribution.
Obviously, the more the distribution is shifted to the right, the better – exactly what you are looking for in a trading strategy. This means that the skew should preferably be positive in trading.
Python-related resources
We have written many articles about Python, and you might find these interesting:
- Get Started With Python Making Trading Strategies (Step By Step)
- How To Download Data For Your Trading Strategy From Yahoo!Finance With Python
- Best Python Libraries For Algorithmic Trading – Examples
- Python Trading Strategy (Backtesting, Code, List, And Examples)
- How To Measure Skewness Of A Trading Strategy Using Python
- Python Bollinger Band Trading Strategy: Backtest, Rules, Code, Setup, Performance
- Python and Trend Following Trading Strategy
- Python and RSI Trading Strategy
- Python and Momentum Trading Strategy
- How To Make An Average True Range (ATR) Trading Strategy In Python
- How To Build A Trading Strategy From FRED Data In Python
- Python and MACD Trading Strategy: Backtest, Rules, Code, Setup, Performance
- How To Do A Monte Carlo Simulation Using Python