ranaroussi/quantstats

Risk Of Ruin Formula

eddiecailinux opened this issue · 3 comments

eddiecailinux commented

can you give me the Risk Of Ruin Formula?
I found formula here: https://www.newtraderu.com/2021/03/13/risk-of-ruin-formula/
and here: https://moneyzine.com/investments/risk-of-ruin/
they use below formla to calculate risk of ruin, which is quite different from quantstats using.
Risk of Ruin = ((1 - (W - L)) / (1 + (W - L)))U
W = The probability of a winning trade.
L = The probability of a loss.
U = The maximum number of trading risks that can be taken before the trader reaches their threshold for being ruined.

issamansur commented 
def risk_of_ruin(returns, prepare_returns=True):
    """
    Calculates the risk of ruin
    (the likelihood of losing all one's investment capital)
    """
    if prepare_returns:
        returns = _utils._prepare_returns(returns)
    wins = win_rate(returns)
    return ((1 - wins) / (1 + wins)) ** len(returns)