Tear-sheets are commonly used to represent graphical performance and summary statistics of a strategy. These can either be high-level sheets for an investment strategy or a deep-dive with a granular low-level report.

Keeping things concise can be very helpful and avoid any paralysis by analysis. We believe what most beginner investors care about are three things

• what return should I hope to achieve with this strategy
• how much risk does this strategy take
• what is the worst drawdown this strategy has suffered historically

A set of results as shown below, can help a beginner investor quickly decide what strategy suits their needs. They can quickly see how much risk a strategy has historically had and also what was the worst portfolio performance they would have had to suffer through (the drawdown).

In this case a very risk-averse investor might sacrifice a higher sharpe ratio strategy, "my momentum" with a sharpe of 0.8, for the lower performing strategy "deep-value" with a sharpe of 0.5. Why would someone do that ? The drawdown metric tells the story. An investor can ask themselves the question

Would I have really kept holding this strategy if I was down 40% and allowed my portfolio time to recover and enjoy the historical positive sharpe ratio of this strategy ?

This is the reason tear-sheets are helpful as it allows investors to choose strategies based on their own personal choice, financial goals and risk tolerance.

Quantitative investment professionals can dive as deep as they like into tear-sheets and produce very detailed reports. At STRATxAI, we focus internally on two types of tear-sheets

• strategy analytics
• backtested strategy tear-sheets

The first one is a strategy deep dive during the research phase, which helps identify strategy-specific properties. These may include items such as:

1. Analysis of how many stocks are investable through time in the strategy
2. Correlation to equity style factors
3. Analysis of the predictive power of the strategy for long positions versus short positions
4. Turnover analysis of the strategy

The more standard format for a tear-sheet output is found when used for backtested strategy performance.

Tear-sheet example of backtested performance for a strategy

This tear-sheet is very detailed both graphically with tabular output and it covers everything from

• Rolling sharpe ratio graphs
• drawdown graphs
• risk statistics
• broken down into monthly seasonal returns
• yearly breakdown of returns

If we had to sum up what would be the go-to items on a tear-sheet, the table below would be a nice summary. It tells an investor the risk-adjusted return in various formats, the overall return and risk and drawdown statistics.