The minimum backtest length and the deflated SR

Lopez de Prado and Bailey (2014) also derive a deflated SR to compute the probability that the SR is statistically significant while controlling for the inflationary effect of multiple testing, non-normal returns, and shorter sample lengths.

Code exapmle

The script deflated_sharpe_ratio contains the commented implementation made available by Marcos Lopez de Prado on his website.

References

• The Deflated Sharpe Ratio: Correcting for Selection Bias, Backtest Overfitting and Non-Normality, Bailey, David and Lopez de Prado, Marcos, Journal of Portfolio Management, 2013